The Basics of Home Loans |
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A home loan, or mortgage, is most simply described as a loan taken out so that you can purchase a home. Here we explain the very basics of home loans so that you can at least have a basic knowledge of mortgages and how they work.
Here, the interest rate on the loan (a percentage you agree to pay on the funds borrowed) may change during the term of the loan depending on the economy. The interest rate on an ARM typically adjusts every six to twelve months, but it may change as frequently as every month. Fixed Rate Home Loans This type of home loan has a fixed interest rate for a set term, usually 15 or 30 years. You can always refinance at a lower rate if interest rates become favorable in the future. When applying for a home loan your credit report will be reviewed and you may be required to provide a number of other details, including: - Employment and income records - Tax returns for the last few years - List of assets and other property (i.e. stocks, bonds, real estate, cars, etc.) - List of liabilities and what you owe (i.e. credit cards, personal loans, car loans, other obligations) - Your budget showing monthly living expenses so that you can demonstrate an ability to pay With this information you and your lender will be able to determine the kind of home loan and size of the mortgage right for you. In some cases, you can obtain a pre-approval or pre-qualified certificate, which shows how much you can borrow so that you can then shop for homes in an appropriate price range. Here are some handy tips to follow - Be sure to complete all forms accurately and completely so that lenders can make a solid decision - Don't be afraid to ask lenders specific questions about terms you're confused about - Work hard to protect your credit score by limiting spending and saving as much as possible - Try and repair any negative items on your credit report and make sure positive items are showing - Take your time shopping for a home loan as there are often many to suit your needs |
