What can you afford? When deciding to finance a home, it is of the greatest importance that you figure out exactly how much you can actually afford. When you meet with a loan officer from a bank for the first time, he or she will calculate what you can afford based on several criteria. In the end, he or she will tell you exactly what price you can look at paying.
If you honestly cannot afford a house at this point in time, it is better to save your money until the time is right. You would not want to risk going into a great deal of uncontrolled debt, just so you can say you are a homeowner.
What to expect when meeting with a loan officer: During your visit with this loan officer, you will most likely need to show him or her your two-to-five year financial history. This history should include your income, assets, and credit. Your income is defined as the gross monthly income you earn, as well as income from extra jobs, dividends, bonuses, and child support. You will also need to show the loan officer your credentials. These include your employment and educational history. Your current employer may even need to provide your loan officer with a letter of recommendation or W-2 forms.
When meeting with the loan officer, you must also be prepared to discuss your assets. These assets are monies that are in your checking accounts, savings accounts, stocks, bonds, certificates of deposit, pensions, and insurance policies.
The loan officer will also look at your credit history, including all of the outstanding debts you may have as well as any car or bank loans you have. A credit report will almost always be done to provide the loan officer with a history of your debt payments. If you find any discrepancies in your credit report, it is highly important that you address them right away. Understand that your credit score is just about the most important factor that will be looked at when you are waiting to hear if you got the loan or not. By looking at your credit score, lenders will be able to determine how responsible you are for making payments on your debts. Lenders want to see that you will be able to pay a monthly mortgage as well as pay on all of your current debts, and still have money to put in the bank each and every month.
Understand the terms of your loan: Nothing could be worse than not being prepared to pay for your loan. Typically, this does not happen, as loan officers ensure that you know what you are getting into. But, it is definitely in your best interest to learn all that you can about the loan you are signing up for. If you have any questions whatsoever - ask, ask, ask!
For those who are not into the nitty-gritty of financial matters, here are some basics of home financing known by millions of Americans.
Kinds Of Home Financing
Usually, loans for home financing are categorized as secured and unsecured. The latter is a loan, which has a fixed frame of payment. The secured loan also has the same feature with the difference that if you are unable to pay within the fixed time, the lender has the right to seize your asset and sell it in order to raise funds for paying off the loan.
With remodeling and home improvements projects, the asset is used as security is usually your home itself. There is a separate document for pledging your asset. It is called a deed of trust or mortgage. Do you know that you can pledge the same asset for more than one loan? In this case, the loans are unambiguously ranked in priority. This explains all the fuss about first and second mortgages.
Why do people take secured loans?
1)To obtain a lower rate of interest 2)To borrow more cash in home financing 3)To mitigate taxes
Loan Qualifications
The first step is to discuss with your lenders about YOUR options. It is a tendency of the lenders to focus on THEIR options. Hence, it's a good idea to begin with a reputable mortgage broker, as he or she may give you a range of loans. Besides this, your lender may pre-qualify you for more than one loan. They are well-versed with the lending rules; hence, it's better to have them by your side.
Remember, lenders of home financing are interested in your
1)Income 2)Credit record 3)Property value 4)Debts
What Are "Points"?
Many loans have something called points. They are nothing but a fee for taking the loan. Points are denoted as the percentage of loan amount. One point= one percent. Points help the lender pay for the expenses incurred in arranging for the loan and to make a profit as well.
Kinds Of Interest Rates
The loan in which the interest rate remains unchanged throughout the loan period is called fixed rate loan. There are loans in which the interest rate may either rise or dip in accordance with market rate such as prime rate. The variable rate is always two percentage points more than the existing prime rate.
Choosing Your Lender
There are three sources that can help you in home financing:
1)Mortgage brokers 2)Specialized lenders 3)Banks
Mortgage brokers are usually associated with regional and national banks, insurance companies, specialized lenders, and even the affluent class. Their diverse association is their specialty. It means you can obtain a broad spectrum of home financing options from them.
Specialized lenders specialize in a single or a couple of loan types. Their specialty is their deep knowledge about the loans they deal with. They are experienced enough to offer you extremely competitive rates for home financing.
Banks work if you have a good rapport with the lender and he or she agrees to give you a broad range of home financing options.
So, start preparing for making your home a dream place with home financing!
Both Matthew Hick & Daniel Wesley are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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