What do borrowers use to secure a mortgage loan? check all that apply.
A. a credit card
B. a down payment
C. a house
Correct Answer: B. a down payment
Correct Answer Explanation: B. a down payment:
➦ It is mandatory for borrowers to make a down payment when they apply for a mortgage loan.
➦ A down payment is usually a percentage of the home’s purchase price paid upfront by the borrower.
➦ Moreover, it reduces the lender’s risk by demonstrating the borrower’s financial capability and commitment to the mortgage.
➦ In most cases, larger down payments lead to lower interest rates and smaller monthly payments for loans.
➦ Loan approval requires down payments, which help secure the loan.
➦ This payment reduces the amount of money that needs to be borrowed, thereby lowering the risk for the lender.
➦ It also demonstrates the borrower’s financial commitment and ability to save, which can improve their creditworthiness.
➦ When a borrower applies for a mortgage, factors like income, assets, and credit score are considered.
➦ Most lenders are looking for low-risk borrowers, so be prepared to provide evidence of your finances. There are several types and lengths of mortgages.
Why the Other Options are Incorrect?
A. a credit card:
➦ A credit card is not typically used to secure a mortgage loan. It is important for borrowers to have good credit history and a good credit score, but these factors aren’t used as collateral or security.
➦ To determine the interest rate and terms of a mortgage, a lender assesses the borrower’s creditworthiness.
➦ The credit card itself is not used to secure a mortgage for borrowers with higher credit scores, but they may qualify for lower interest rates.
➦ Credit card payments are not accepted directly by mortgage lenders.
➦ A service called Plastiq allows you to pay your mortgage with a Mastercard or Discover card for a 2.85% fee if you have a MasterCard or Discover card.
➦ It won’t be worth it most of the time for most people to pay their mortgage with a credit card because of the fees.
C. a house:
➦ For a mortgage loan to be secured, borrowers must have a specific property in mind that they intend to buy.
➦ As collateral for the mortgage, the house itself serves as the property.
➦ In the event that the borrower fails to make their mortgage payments as agreed, the lender is able to take possession of the property through a legal process known as foreclosure.
➦ To determine eligibility and terms of the loan, a lender must assess a property’s value, location, and condition.
➦ While a house is the asset being financed through the mortgage loan, it is not used by the borrower to secure the loan.
➦ Instead, the house serves as collateral for the loan; if the borrower fails to repay the loan as agreed, the lender can seize the property through foreclosure to recover their investment.
➦ However, the borrower does not use the house itself as a means to secure the loan; rather, the down payment and the mortgage contract serve as the security mechanisms.
➦ In summary, while a credit card may be used as a tool to establish a borrower’s creditworthiness, it is not used as collateral or security to secure a mortgage loan.
➦ The primary elements for securing a mortgage loan are a down payment and the property itself, represented by option B (a down payment) and option C (a house).
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I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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