Understanding the Basics of Home Loans

by Community Lending Group Consultant

If you're a first time home buyer looking at mortgage rates in Utah, understanding what loans are can be difficult. But here, we've broken down the terms to make it simpler, for you the consumer to understand.

Mortgage

A mortgage is a type of (home) loan in which property or real estate (in this case—your home) is used as collateral. A mortgage is comprised of two entities: the borrower and lender, which is the bank in most cases.

The borrower receives cash equivalent to the value of the house and is given a set period to pay back the lender in full with interest. A home loan can last 15, 30, or 40 years, depending on your down payment and monthly principal.

Collateral

Think of collaterals as a safety exchange in case something goes wrong. It is property (such as securities) pledged by a borrower to protect the interests of the lender. Worst case scenario, if your mortgage isn't paid on time, the lenders have legal rights to foreclose your property so be sure to choose the correct mortgage plan.

Down Payment

The down payment is the initial payment of a large investment. This represents only a percentage of the entire cost. Homebuyers can pay 5% to 25% down payment, but it would be better to pay a larger down payment to cut on your interest rate.

Principal

This is the amount of money you agreed to pay back to the lender. The principal is divided monthly from the remaining cost after you've paid your down payment.

Interest Rate

The interest rate is the amount fined, reflected as a percentage of the principal -- typically around 4%--, by a lender to a borrower for the use of assets. Interest rates are customarily paid annually. This is known as the annual percentage rate (APR).

Credit Scores

These are the ratings the credit company gives you of the likelihood you will pay them back. Fixing your credit scores is critical when getting a home loan because it will determine whether you get one or not. Better credit score means a higher chance of being granted a loan.

For any questions about getting a home loan in Salt Lake City, feel free to contact Community Lending Group. We'll be more than happy to answer your queries.