As a prospective homeowner, you’ve probably been hearing a lot of real estate terminology used to explain the housing market and home buying process. You may have heard two common terms: “loan” and “mortgage.” You may even hear people use those words interchangeably, but they are not identical. Mortgage lenders in Las Vegas can tell you more about what loans and mortgages are and how they differ.
What is a loan?
Home loans are a financial agreement between the homeowner and the lender. In this arrangement, the lender provides the borrower with a predetermined amount of money to help cover the cost of buying a home. The borrower agrees to repay the lender, generally, a set amount each month until the loan is entirely paid off. The borrower acknowledges that a certain loan payment is due every month. Otherwise, there may be financial repercussions, including eventual foreclosure of the home.
Home loans are available for residential purposes, and homeowners can take out loans as needed to pay off the cost of their house. However, loans are also offered for commercial purposes.
Common Loan Types
There are several kinds of loans in Las Vegas available for people who want assistance financing their property. These loans are common options:
- Secured loans
- Unsecured loans
- Revolving loans
Secured loans are loans that use some kind of physical asset as collateral. Cars and even homes may be used as collateral. Sometimes people choose to use financial assets for collateral, too, such as stocks. Regardless of the collateral that the borrower chooses, that collateral is then used as secured debt by the lender.
An unsecured loan, on the other hand, does not use collateral. Rather than using a borrower’s physical assets for securing a loan, lenders will look at a borrower’s creditworthiness instead. They will provide a loan based on the borrower’s credit score. Unsecured loans are considered to be riskier than secured loans, so a better credit score is often required in order to get an unsecured loan.
A revolving loan is a form of credit that does not have a set number of payments, which makes it different from other kinds of loans. Credit cards are one example of a revolving loan. With a revolving loan, also called revolving credit, you’ll have a line of credit available while you chip away at the balance payments. Revolving loans are subject to a maximum limit, so you may want to think about how much money you need for your home before requesting a revolving loan. Since revolving loans do not have end dates, you can keep your revolving loan account open while you work to make the necessary payments.
What is a mortgage?
Now that you have a better understanding of loans, you may want to ask a mortgage lender what your options are for getting a mortgage in Las Vegas and if taking out a loan or a mortgage makes more sense. A mortgage is a type of loan. A mortgage is an agreement between a borrower and lender where the lender has the legal right to take possession of the property if you fail to meet the terms of the mortgage that both parties agreed upon beforehand. Usually, that means not paying the agreed-upon amount, which may include the principal payment and the interest.
While loans can be used for residential and commercial property purchases, mortgages are typically reserved for residential homebuyers. Mortgages are also a popular option for people who need help paying for their home out of pocket with the funds that they have in their bank account. Along with residential homebuyers, mortgages are also a common option for investors who might mortgage their properties to free up funding for other investments they own. Mortgages can also be used to help investors take advantage of tax deductions.
Another critical distinction between loans and mortgages is that while there are several loan categories, there is just one category of mortgages, which is the category of “secured” mortgages. A secured mortgage is much the same as a secured loan in the sense that the lender uses collateral to secure the loan. In the event that the borrower cannot continue making payments on the loan, the lender can take possession of the home and eventually put it into foreclosure.
How Mortgage Loans Work
When you sign up for a mortgage, the lender agrees to give you a specified amount of money so that you can buy a house. When you take out the mortgage loan, you agree to pay the money back to the lender. The mortgage loan payments include the principal cost of the loan plus interest. Those payments are scheduled on a monthly basis. Depending on the amount of money you borrowed and your personal finances, it can take a few years to pay off the loan plus whatever you owe in interest.
As previously mentioned, you are responsible for repaying the money you borrowed for your mortgage payments. If you fail to make those payments on time and in full as arranged with the lender, the lender has the option to possess and foreclose on your home with a mortgage loan. Ultimately, the lender can resort to selling your house in order to recoup the losses on the payments that you missed.
How to Get a Mortgage
By following a few steps, it’s easy to get a mortgage. The mortgage loan process is relatively simple if you have a regular job, a steady income, and a decent credit score.
In order to become a homeowner, there are several steps that you should take first, including:
- Be prepared to show proof of funds
- Shop for a home
- Make an offer
- Get approved
If you want to learn more about applying for a mortgage, ask a loan officer in Las Vegas for assistance and support. A loan officer can help you make sure that you’re taking all the right steps to apply for a mortgage and have all the information required to submit a complete application.
Mortgage and Loan Interest Rates
You won’t be able to escape interest payments with loans or mortgages, but a loan officer can tell you more about loan interest rates and mortgage rates in Las Vegas. It’s always best to shop around for different interest rates so that you get a deal that works for you.
Note that when you take out a mortgage or a loan, you have the option of getting either one with a fixed-rate or a variable-rate interest payment. A fixed-rate interest means you will have a set interest payment throughout the loan or mortgage. From the start, you’ll know exactly how much money you will be spending on interest every month. With a variable-rate loan or mortgage, the amount that you end up paying in interest can fluctuate over time. That means the loan or mortgage rates in Las Vegas that you need to pay every month can change.
There’s much to learn about getting a loan or a mortgage for a house if you are looking to buy a home. However, mortgage lenders in Las Vegas can help you figure out which one is best for your situation. Contact us today to learn more and feel confident about buying a home.