A mortgage is a type of loan that uses your house as collateral. It can be the house you already own or one you are about to purchase, the latter usually being the case if you are a first-time homebuyer.
How does a mortgage work?
A lender or bank will let you borrow typically 80% of the property’s value that you must pay back with interest over a set period of time, usually a 15- or 30- year term. If you fail to pay back your mortgage, your bank or lender will take your property through foreclosure.
There are several types of mortgages but the two most common are fixed-interest and adjustable rate mortgages (ARMs).
With the former, you pay a relatively low fixed monthly payment over a period of 15 or 30 years. ARMs, on the other hand, not only offers an even lower initial interest rate but one that resets or adjusts for every year in the life of a mortgage.
Other mortgage types are interest-only mortgages and payment-option ARMs.
Can you make an offer without a mortgage pre-approval?
Pre-approval from a bank or mortgage lender is an important part of buying a property. This is because it shows you have the financial capacity to pay for your purchase. But you can still make an offer even without a pre-approval if a property has no other bidders.