The term of a mortgage may vary. The most common home mortgage for an owner-occupied house is thirty years, but they also are made for fifteen years. Commercial loans of this type are most commonly twenty years.
The interest rate is one key feature of this type of loan. It can be variable, and if it varies, it is usually based on the prime interest rate, LIBOR, or some other recognized index. It can also be fixed, which means that it will never change. The person may choose to reduce the payment and interest may making a down payment of up to twenty percent on the purchase, but as little as five to ten percent is also allowed.
Most loan application processes are similar between different banks and other lending institutions. The borrower’s credit scores are pulled from any or all of the national credit organizations. The borrower’s employment status and his income are examined so that the lender can know whether there is sufficient income to make the payments. Also, the bank looks at the person’s other expenses to make sure that there is enough cash flow to make the loan payment after other expenses.
Usually, the lender requires an appraisal of the property. This means that an expert walks through the property, takes measurements and pictures, and estimates its value based on the sales prices of similar properties that have recently been sold in the same area.
Escrows are also commonly used tools in the industry to protect lenders and ensure prompt payment of ancillary items such as property taxes, insurance and private loan insurance. Mortgages often include these items all together, bundled with the interest and principal payment. When this occurs, it is known as PITI.
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