Mastering Mortgages 101

 Buying a house for the first time can prove to be a scary and daunting task, but luckily, it doesn’t have to be! In fact, there are millions of people who buy and sell real-estate every year. This article will hopefully provide you with valuable insight on the process of purchasing a house and answer some commonly asked questions.

First of all, what is a mortgage? A mortgage is a type of lien (a claim to an asset). As long as you have a mortgage, then the bank has a claim to your house (aka – They can take your house if you stop making payments). If you pay off your mortgage and you no longer owe anything on your house, then your mortgage is released and the bank no longer has a claim/lien on your house (at all!).

So what are some common situations or documents an individual could encounter when applying for a mortgage?

  1. Owner’s Title Policy. If the previous owner didn’t pay their property taxes, or if there is a construction lien against the property, or other property issues that relate to the real estate, then the title policy protects you against your claim to the property that you’re purchasing. For example, if the land was split into 4 pieces in 1851, and 2 were sold away but never occupied and the entire time the land has been registered as a single parcel, and someone today found out that they have actually inherited those 2 pieces, then they could sue you to get those 2 pieces of land back to which they have a legal claim. The title policy protects you against property line dispute issues such as the example above. Or if the previous owner financed renovations to the property with a construction company and never paid the construction company back, that would be another issue covered by the title policy.

  2. Flood Zone Determination. The government requires you to check to make sure that your real estate is not in a flood zone before purchasing. If your property is in a flood zone, then you are legally required to pay for flood insurance (which is expensive). There are a lot of cases where somebody has purchased a house without checking to see if it’s in a flood zone. Later on, they discover that the house is, in fact, in a flood zone. Because of the extra expense added by flood insurance, owners have been known to completely abandon the house after learning of this unfortunate news. Make sure you check if your potential house is in a flood zone!

  3. Appraisal. This is where an appraiser comes to the house and places a value on it for that date in time. Banks and financial institutions require an appraisal to be performed on a property that they will be financing because they want to ensure that they aren’t giving you too much money. Most banks and financial institutions require the appraisal to be done within the past 12 months, but some will allow up to a year and more, and some will require less; just check with the company you will be using for your mortgage.

Mortgages are very dynamic and complicated, and although this doesn’t cover everything by far, it should give you a basic understanding moving forward with pursuing a mortgage!