Odds are, any Michigan resident that is purchasing a home will be signing a mortgage to go along with it. While mortgages are very common across the U.S., it’s important to fully understand the type of debt you’re taking on.
What goes into getting approved for a mortgage?
First-time homebuyers might not know anything about their mortgage. But essentially, mortgages are loans specifically designed to help you purchase a home.
Mortgages work similarly to getting approved for any other loan or line of credit. To get approved for a mortgage, you have to prove you’re able to make the monthly payments and have a good history of making payments on time.
People who apply for a mortgage often go through a credit check and have to bring in paystubs to prove they have a solid income. After you’re approved, the mortgage is considered a lien on your newly purchased home – which allows them to take it if you don’t make payments.
What type of debt is a mortgage?
Generally, debt can fall into one of two categories – secured and unsecured. Unsecured loans don’t have any security for the lender, meaning if the borrower defaults on payments, there are limited options to recoup their losses.
Examples of unsecured debts come in the form of student loans or credit cards. Secured debt – or loans – are debts that give the lender a sense of security in the form of collateral.
Mortgages are considered secured debt because they use the house as collateral. Car loans are another great example of secured debt, where the car is used as collateral.
It can be scary signing a mortgage knowing that the lender can foreclose on your home if you don’t make payments. Thoroughly reading your contract and making sure you pay the loan on time every month are essential to protect your interests when signing a mortgage.
