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Home Loans Intro Guide


One of the major loans you will ever have to take out is that of a mortgage loan, or home loan. If you\'re planning on buying a home, it\'s best to understand the basics of mortgages, which can be a little tricky to grasp at first. Read below for more information on this daunting topic.


Basics of a Mortgage Loan

A mortgage loan is a long-term loan for which the house you are buying is used as collateral. This loan actually more of a security instrument than a traditional loan, that is the money provided by the lender is secured by the property on which the mortgage is written.

If the home buyer defaults on the mortgage payments, the bank, credit union, savings and loan or mortgage broker has the right to repossess the home to recover the money they are owed.


Types of Mortgage Loans

Fixed Rate Mortgage

With fixed-rate mortgages, the amount of interest you pay stays the same no matter what the interest rate is for other kinds of debt. This keeps your mortgage payment from changing every time the prime rate changes. A 30-year mortgage will have lower payments than a 15-year mortgage but you\'ll also pay a lot more in interest. You also build equity on your home a lot faster if you have a 15-year home loan because much of your payment goes to interest when you have a 30-year loan.

Adjustable Rate Mortgage

If you\'re not planning to live in your house for a long time, an adjustable-rate mortgage might be better. These loans start with a fixed-rate period and often have lower interest rates than fixed rate mortgages during that time, which can range from a month to several years. After that time the rate changes annually. Sometimes these loans can be converted to fixed-rate loans for a fee.

FHA Mortgage Loan

A popular option for first-time homebuyers and those with less-than-perfect credit is the FHA mortgage loan. These loans are fully insured by the Federal Housing Authority and require a 3% down payment. FHA mortgage loans offer more flexibility than other loans in that they consider different sources of credit besides just credit cards and will give home loans to people who have filed for bankruptcy in the past.

Jumbo Mortgage Loans

Jumbo mortgage loans allow you to borrow more than the standard limit, around $360,000 for a single-family home. You can buy a bigger house with a jumbo loan, but jumbo loans also have higher interest rates because of the increased risk in lending so much.

80-20 Mortgage Loan

If your credit isn\'t perfect you may still be able to buy a house with a special kind of no-money-down mortgage loan known as an 80-20 mortgage loan. With an 80-20 mortgage loan you take out two mortgages, one for 80% of the purchase price and another for 20%, which usually has a higher interest rate. Using two different mortgage loans allows you to get around paying private mortgage insurance, which is usually required when the full price of the house is mortgaged.


Steps to Take When Applying for Home Loans

First examine your finances. Determine how much you can afford to spend, and then get all of your financial documents in order-this includes lists of your assets, tax returns, credit history, pay stubs, etc.

Once you have an idea of how much you want to borrow and have determined your finances, you\'re ready to speak to a lender. Your individual mortgage lender or broker will take you through the pre-qualification process. This is a summary of your financial situation in which you will evaluate your ability to secure a home loan.

Your lender will access your credit report and assess your needs as well as incorporate the latest interest rates and available loan options into a formula to determine if you are truly qualified for loan approval.

Decide which loan you want and then shop around. You\'ll also have to shop loan costs, including the interest rate, broker fees, prepayment penalties, loan term, application fees, credit report fee, appraisal and more.


Bad Credit Home Loan - Is it possible?

It may be more difficult to obtain a mortgage if you have bad credit, but it\'s not impossible.

Check out your credit score before embarking on your mortgage search. Try to improve it as much as you can by repairing your credit before applying for a home loan.  Make sure to shop around for the best deal possible once you have this information. Don\'t be embarrassed by your poor credit, but know you may not get the best terms, especially interest rates.

Get a cosigner if you can\'t qualify for a loan. Choose someone with impeccable credit history.




Benefits of Debt Consolidation

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  • Eliminate Debt in Less Time
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