Qualification

• A borrower must be qualified for a particular mortgage amount. Much of qualification has to do with the borrower's finances. A lender examines the borrower's credit history to detect signs of late payments or defaulted loans, a warning sign that may lead to rejection. Lenders consider the borrower's credit score, with a higher score making qualification more likely. Lenders also examine the borrower's income to make sure enough money will be available each month to pay for the mortgage. Most lenders also order an appraisal of the property to make sure it is worth as much, or preferably more, than the loan amount.
  
  

Mortgage Terms

• Mortgage terms are the basic factors that determine how the mortgage will operate. Every mortgage has a length, usually between 10 and 30 years, during which the borrower will pay it off. Mortgages also have an interest rate, which is applied to the principal, or base amount of the mortgage, every time a borrower makes a payments. Interest rates can be either variable or fixed, depending on the type of mortgage. In a fixed-rate mortgage, the interest rate and monthly payments remain the same throughout the loan's life. With a variable-rate loan, the interest rate applied to the principal can change periodically based on economic conditions. Mortgages also have many other clauses dealing with specific events, such as death or selling the house. Lenders alter these terms to manage borrower risk.
  
  

Mortgage Payments

• The borrower begins by offering a specific down payment, or a starting "good faith" payment on the mortgage, which is a percentage of the house's price. This amount ranges from 10 to 20 percent in most cases, but for some loans such as FHA mortgages it can be as low as 3.5 percent. In most cases, the higher the down payment, the more favorable terms the lender is willing to offer. After the loan is issued, the borrower makes monthly payments, paying off the interest due that month and a portion of the principal at the same time, until the mortgage is fully paid off.
  
  

Paying Off a Mortgage

• When a lender creates a mortgage, that lender creates a note representing the claim on the borrower for the money owed. When a borrower fully pays off the mortgage, the lender relinquishes that note and marks it paid in full. If there is a deed in trust, the lender also marks the deed as satisfied. This helps absolve the borrower of future payments, but also transfers ownership of the property fully into the hands of the borrower.