Mortgages — How Real Estate Is Financed

A mortgage is a loan secured by real property. The borrower pledges the property as collateral.

Two documents in every mortgage transaction:

Promissory note — the borrower's promise to repay (IOU)

Mortgage/Deed of Trust — pledges the property as collateral

Types of mortgages:

Conventional — not government-backed; requires stronger credit

FHA loan — Federal Housing Administration insured; lower down payment (3.5%), lower credit score OK

VA loan — Veterans Affairs; 0% down for eligible veterans

USDA loan — Rural development; 0% down in eligible rural areas

Fixed-rate mortgage: Interest rate never changes. Predictable payments. Best when rates are low.

Adjustable-rate mortgage (ARM): Rate changes periodically based on market index. Lower initial rate, but risk of rate increase.

Loan-to-Value (LTV): Loan amount ÷ property value. Lenders generally want LTV below 80% to avoid requiring PMI (Private Mortgage Insurance).

Reference:

Wikipedia: Mortgage Loan

https://en.wikipedia.org/wiki/Mortgage_loan