Having acceptable credit, of course, is a key element but structuring home loans can take many forms depending upon conditions.
Traditional loans
If you are a first time home buyer or a seasoned home owner you are likely aware of the traditional 30 year fixed rate home loan. Mom and Dad had one and Grandma and Granddad had one. In the past, there were very few options in the home loan marketplace. Today, the traditional 30 year fixed rate home loan still exists and has even had a bit of a twist put into it. In recent years, many people are opting for a 15 or 20 year fixed rate deal to reduce interest costs. The idea of a traditional home loan is to have predictability in payments so a subtle shift to a shorter term is a big thing.
Variable rates
In the past, the variable rate loans were for real risk takers. It still does have a certain amount of risk associated with it but, generally, it can be a very sound way to go. The only real need is that you have the right set of circumstances working in your favor. With a variable rate home loan the interest rate is initially lower than a fixed rate loan for a set period of time (usually 3, 5 or 7 years.) After this period the interest rate changes as interest rates change.
The variable rate home loan is a solid choice if you are planning to not be in your home for very long, say 3-5 years. The thing to consider, however, is that if economic conditions turn south you may end up having higher monthly payments down the road. In this instance, a stable and well paying employment situation is a good thing.
A custom home loan
Offerings of home loans have progressed to a point where many lenders are offering an entire grocery basket of loan types for just about any borrower. Low down payments, interest only plans and sub-prime interest rates are just a few of the home loans being offered to the consumer. Each has advantages and disadvantages for the consumer and care needs to be exercised.
Several of these types of loans are geared for those that may have issues with making a significant down payment or those that would like to lower monthly payments. There really is no end to the type of custom home loans available to the customer.
Finding the right lender is the key. If they ask allot of questions about your finances they should be able to tailor a home loan package to your needs. Being upfront about what your financial situation is and what you'd like to accomplish will go a long way in finding the right home loan for you. The market is ready to lend.
When you have decided to request a mortgage loan, refinance mortgage loan or home equity loan, you will do better if you get prepared for the application process by gathering all the information you will need to show to the lenders and by knowing what the lenders will be looking for in order to determine whether you are approved or not.
Loan Quotes And Pre-Approval
When you request a non obligation free loan quote from a lender you will have to provide them with your credit score, debt information and income level. With this information, the lenders will tailor some loan options that may suit your needs. This loan quotes do not create any obligation on either part. You do not have to request the loan nor does the lender have to approve it right away. If you decide to apply for the loan, there will be a more thorough investigation of your credit and debt situation.
Pre-Approval implies that you authorize the lender to pull your credit report, analyze your debt and income and make a more significant investigation on your financial situation in order to verify that the information you provided is true and that you are eligible for loan approval.
If you get pre-approved, chances are that the loan definite approval is just a matter of time. And the rest of the process will consist of only boring paperwork. Bear in mind though that you should only request a pre-approval process when you are certain you want to apply with that lender since too many credit report checks will affect your credit score negatively.
What The Lenders Are Looking For
Lenders will check that you have a steady income. If you are employed they will want to make sure that you have at least one year of stability with your current employer and that your salary is good enough to meet the minimum monthly payment possible. Usually the monthly payment cannot exceed 35 percentage of your income since it is believed that the remaining percentage has to be available for other expenses including unexpected spending like medical bills, etc.
If you are not employed, you need to show proof of other steady income. Your tax and bank statements are usually the main sources of information in these cases. The statements have to show at least a minimum monthly steady income. This minimum will be taken into account when calculating the monthly payments you will be able to afford.
Lenders will also check your credit report, looking for stains in your credit history. The last years will be particularly important at this stage. There must be no late or missed payments of significant importance in the last two or three years. Past bankruptcies can be an obstacle unless occurred 8 years ago while your credit report shows impeccable performance in the following years.
As regards documentation and information you will basically need among others: sales contract, social security numbers, names, addresses, proof of income (tax statements, bank statements, wages documentation), all data on bank accounts (savings, checking, etc.), other investments statements. You can always contact the lender and ask whether any additional documentation is needed.
Both Alan Lim & Ben Needles 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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