Buying a house on mortgage is the next alternative to buying a house after paying the asking price outright. The customer service centers run by real estate agents are one of the best providers of information on the condos and houses available in the city of your choice. Before you visit these agents, it would be better if you do your homework by scouting a few neighborhoods of your choice. You could then give your inputs to the realtors so that they could come up with a property that best suits your needs. They will also help you to fix the period in months or years a property can be used by you on mortgages.
When you decide to buy a house for your family and if you are short of own funds to make the all important purchase, you can approach the providers of mortgages who will assess your application based on a number of factors (such as your credit score, repayment history of existing loans etc) and extend you a mortgage if you are creditworthy. A mortgage is nothing but a loan that you take out to finance a real estate purchase using the property itself as collateral or equitable mortgage.
Generally, the financial institutions that give you the mortgage facility will ask you to put in a certain percentage of the purchase price downright and the rest of the becomes principal of the mortgage. Another alternative for payment is to begin with smaller monthly payments with the rate rising annually for several years.
This is the preferred scheme that has been favored by the current federal government administration as this gives you an option of paying lower amounts based on current rates. The payments can be proportionately increased as your earning capacity increases with the improvement in the general economic climate. This leaves enough money in your pockets to buy other goods and services; this expenditure has a cascading effect and is expected to get the economy out of the bad shape that it is in these days.
This approach of repaying your mortgages is good for those who know for certain that their income will rise in the future. Things can only get better from here, so most of us should not have a problem in increasing our income and benefitting from the economic upturn everyone is expecting by the end of this calendar year
During a mortgages early years most of the payment goes towards interest. This is why prepaying the mortgage now may not be to your advantage as you have been paying the mortgage for a long period of time (say five years or more). What you can do then to take advantage of the current rates is to take out a second mortgage and use the money to buy another home, which you can let out to earn additional income. You could also use the second line of credit to substantially remodel your house or undertake major repairs. Just make sure that the remodeling plan is approved by your lender before you set out to make the changes to your present house.
Nothing seems impossible today. We all know about Home Loans that help us purchase our dream houses. But what happens when you want to build your own home, do you go about applying for a home loan as usual? No. This is exactly where Construction Loans come in. Construction Loans are taken to fund the construction of your home or that of a commercial structure (Commercial Construction Loans). Let’s get a little more acquainted with this category of loans.
Construction Loans are short-term loans and are therefore more expensive than regular home loans. However, they are ideal for construction purposes because of the features they offer. The process may seem a little complicated but there’s sufficient help to walk you through it.
Construction Loans can be applied for either before or during construction of your property. Whenever in need of additional funds, you will be required to assess the situation and accordingly apply for it. Your architect is obviously the best person who can tell you the exact amount required for construction to kick-off. Here, you must involve every tiny amount – the mason, electrician, plumber, landscaper, excavator, painter, etc. and costs like laying of the foundation, painting, necessities like cement, bricks, wood, etc. All these small amounts are what total to make that ‘big’ sum. You then apply for this amount with required proof of course. An appraiser is also called in to verify whether your application amount is justified.
A borrower applies for a Construction Loan no doubt, but the dealings or the actual headache is that of the architect and the lending party. The lending party directly finances the builder from time to time, as and when a purchase has to be made. These instalments are termed as ‘draws’ and each draw has a processing fee attached. So more the draws, higher is your total cost.
Repayment may seem difficult after reading through this article, however, to make things easier, the repayment plan isn’t as bad as it seems. As long as your home is still being constructed, you need to repay only the interest on the total loan amount. The principal amount has to be repaid in a single lump sum or the Construction Loan is then converted into a regular mortgage. The latter is usually the preferred choice. All Construction Loans, however make it imperative for the borrower to make a down payment of 10% of the amount.
Borrowing is the easy part, while repaying is always the main issue. However, in this case, loan approval too is very uncertain because of the underlying risk. Lenders therefore, take their time in approving these loans. They verify your amount, credit history, employment details, total incomes, etc to gauge whether you will be in a position to repay the entire amount or not. Construction Loans also require collateral of significantly high-value. You also need to own the land before construction begins. No lender wants to chase you through the legal system to get his money, he therefore gauges the situation in advance and only then approves your loan. Lenders also take advantage of the situation you’ve created and charge relatively high interest rates and stringent terms and conditions.
Everything seems fine, but to exploit the best opportunities available, you need to do your homework. Research banks and other financial institutions and select a Construction Loan package that best fits your pocket and also one that can lend you the largest amount to prevent derailment of construction arising out of unforeseen costs. Make sure you have everything you need – money for down payment, required documents for proof, collateral, etc. Build your home and your dream … all it takes is a little bit of exploration!
Both Blair Mehigan & Marsha Claire 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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