What is Mortgage and Its Basic Types:
A mortgage is a type of loan that is used to purchase a property/House. The loan is secured by the property, which means that if the borrower defaults on the loan, the lender can foreclose on the property and sell it to repay the debt. There are several types of mortgages details are mentioned below.
Fixed-rate mortgage: This is the most common type of mortgage, where the interest rate stays the same for the entire term of the loan. This makes it easy to budget for your monthly mortgage payments, as they will not change over time.
Adjustable-rate mortgage (ARM): With an ARM, the interest rate can change over time. The rate is typically fixed for a certain number of years, and then it adjusts according to a predetermined index. This means that your monthly payments could go up or down over time.
FHA mortgage: This type of mortgage is insured by the Federal Housing Administration (FHA) and is designed for first-time homebuyers or those with low-to-moderate income. FHA loans have more lenient credit and income requirements, but they also require mortgage insurance, which can make them more expensive.
VA mortgage: This type of mortgage is guaranteed by the Department of Veterans Affairs (VA) and is available to eligible military service members, veterans, and surviving spouses. VA loans have more lenient credit and income requirements and do not require a down payment or mortgage insurance.
Jumbo mortgage: A jumbo mortgage is a mortgage that exceeds the conforming loan limits set by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac. Jumbo loans tend to have higher interest rates and stricter underwriting standards because they are not backed by the GSEs.
Balloon mortgage: This type of mortgage has a shorter term than a traditional mortgage, typically five to seven years. At the end of the term, the borrower must pay off the remaining balance in a lump sum, known as a “balloon payment.” Balloon mortgages are often used by investors to purchase properties that they plan to flip or sell quickly.
Mortgage Laws in United State:
Mortgage law in the United States is primarily regulated by state law, although federal laws do apply in certain areas. Some of the key federal laws that apply to mortgages include:
The Truth in Lending Act (TILA): This law requires lenders to disclose the terms and conditions of a mortgage, including the annual percentage rate (APR), the total finance charge, and the total payment obligation. It also gives borrowers the right to cancel certain types of mortgages within three days of closing.
The Real Estate Settlement Procedures Act (RESPA): This law requires lenders to provide borrowers with information about the closing process, including a Good Faith Estimate (GFE) of closing costs and a HUD-1 Settlement Statement that itemizes all of the fees and charges associated with the mortgage. It also prohibits certain practices, such as kickbacks and unearned fees.
The Equal Credit Opportunity Act (ECOA): This law prohibits lenders from discriminating against borrowers on the basis of race, color, religion, national origin, sex, marital status, or age. It also requires lenders to consider alternative credit sources, such as utility payments and rent, when evaluating a borrower’s creditworthiness.
State mortgage laws may also apply to the mortgage process and can vary significantly from state to state. For example, some states have their own foreclosure laws and procedures, while others follow the procedures set forth in federal law. It is important to be familiar with the mortgage laws that apply in your state.