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Mortgage Loans
Mortgage loans are loans that have a lien against the property that a bank or lending company holds. With a mortgage loan, the consumer borrows money against the property at market value of which he or she wants to purchase and pays back the loan with interest to the lender. Applying and qualifying for a mortgage loan does not have to be a difficult task and have many benefits for the borrower.
Basic Requirement Before Applying Home Loan
When applying for a mortgage loan, lenders want to see documentation that the borrower has a job history of at least two years. Job stability is very important as it shows the lender that you have the funds to make the repayments of the loan back. Job changes and gaps in employment can actually jeopardize your chances of qualifying for the loan.
Understanding Type of Mortgage Loans
There are four types of mortgage loans to consider. The first is fixed-rate mortgages. This type of mortgage keeps the interest rate the same throughout the term of the loan. The benefits of a fixed-rate mortgage are the predictability of having no surprises occur in the interest rate over the course of the loan. The rate is consistent and stays the same from the start of the loan to the end of the loan.
The second type of mortgage loan is an adjustable-rate mortgage. This can be a good choice for consumers that expect their income to rise over time. An adjustable-rate mortgage loan has a lower interest rate compared to a fixed rate mortgage loan. Having the lower rate will usually allow you to borrow more compared to a fixed rate. Because adjustable-rate mortgage loans can be unpredictable, you need to be aware of the level of risk that is involved. If your income is to rise in the future, then you could save on interest payments with this type of loan.
The third type of mortgage loan is a balloon loan also referred to as a reset mortgage. These types of loans are unique as they are based on a 30-year amortization program, but you only pay on the payments for 5 or 7 years, depending on the term of the loan. When the period is up, you will need to make a balloon payment for the rest of the principal. You can also resent the mortgage at what the currant interest rate is. Balloon mortgages have lower interest rates compared to the traditional home loan.
The fourth type of mortgage loan is interest-only loans. These loans have the option of just paying the interest on the loan every month. They can have a fixed or an adjustable mortgage rate. An interest-only loan can be beneficial for anyone that has an income that fluctuates monthly. The option of paying the interest on the loan is usually for 5 to 10 years, and then the borrower is obligated to start paying the principal on the loan. The advantage of this type of loan, allows the borrower to make low payments, which qualifies them for a larger loan.
Mortgage Costs and Loan Terms
There are many factors that will decide on what your loan terms will be. You will determine these factors and others will be determined by your financial status and economic circumstances. Certain costs will also differ depending on what state you live in and different lenders. The following is standard costs to expect.
1. Credit report fees. It is the cost of obtaining your credit report and you usually pay for the copy for the lender.
2. The cost of the appraisal fee. This will pay for the person that appraises your home.
3. Application fee. This is the fee that is paid to the lender to process your application of the loan.
4. Lock-in fee. You can pay the lender if you find a low interest rate that you want to lock in during the time the lender is reviewing your application.
5. Prepaid interest. This is the interest that accumulates between the closing and the start of the following month.
6. Loan origination fees. This fee covers the processing of the mortgage. In many cases this fee can be negotiated with the lender.
7. Points also are referred to discount points. Depending on the mortgage agreement you may have to pay a fee or elect to pay points at a lower interest rate.
8. Attorney fees if you decide on having one for their services.
9. Closing costs. Most of the costs listed above are included in the closing.
Tips For First Time Home Buyer
1. Know how much you can afford. Using a mortgage calculator can help you know what your payment will be.
2. Know what your total monthly housing cost will be. This includes taxes and homeowners insurance.
3. Check and find out what homes are selling for in the area that you are looking at to buy. There are websites that can give you a generalized amount that you could be looking at to spend.
4. Know what the amount will be in closing costs. Closing costs can include title and settlement fees, taxes, prepaid terms such as homeowner’s association fees and other costs.
5. Know what your budget is and if the expense of buying a home will fit in to it. Some financial advisers recommend spending no more than 28% of their income on housing costs.
7 Questions To Ask Yourself Before Applying For Home Loan
1. Is it a fixed or an adjustable rate loan?
2. What are the terms of the mortgage?
3. Are there penalties if you pay the mortgage of early?
4. The amount of interest to expect to pay?
5. What are the closing costs?
6. What are the documents that are needed for the process of the loan?
7. How much will be needed for a down payment?
Top 3 Home Loan Mistakes
1. Be aware for balloon payments. If you decide on a mortgage that has balloon payments, you will have to pay the amount that is due on the date of what is indicated in your loan contract. If you cannot make this payment on the date specified, you will either have to refinance the loan or sell your home to prevent foreclosure.
2. Be aware of high fees and rates. If you have a poor credit score, there are some lenders that will take advantage of the situation and charge you with high fees and rates. Always do comparison-shopping before you commit to a lender.
3. When it comes to adjustable rate mortgages, you need to be cautious and be informed. Adjustable rates can have more of a risk to the borrower, then a fixed rate.
5 Ways On How To Get The Best Mortgage Loan Rates
1. Always shop around. Don’t just settle for the first lender that you come upon. Comparing the rates and fees form different lenders will give you the best deal. Shopping online is a great place to compare the different lenders and what they offer.
2. If you have any mistakes on your credit report, be ready to fix them. If you have mistakes on your credit score, you will end up paying a higher interest rate.
3. Always pay your bills on time. Keeping your bills paid on time, will keep your credit score from lowering. Lenders want to be able to see that you will be trustworthy to make the repayments on time.
4. If you have credit card debt, be sure to pay it down. You will be penalized if your debt-t-available-credit ratio climbs high. Reducing your credit card balance will be a positive impact on your credit score.
5. Don’t apply for other loans or credit cards. When you fill out the application form, the lender will check your credit score and those loans and credit cards will show up in the history, which can lower your score.