When it comes to prioritizing your personal finances, the biggest piece of the pie is often your house. That’s why it’s so important to compare rates before you take out a new mortgage, refinance an old one, or acquire a home equity loan or a reverse mortgage. You’re not alone in the process. We can help guide you through the home loan marketplace.
A mortgage is a legal document a home buyer signs when they purchase a home, as proof that they will pay off their loans. It is sometimes referred to as a deed of trust in certain states. A mortgage gives your lender the right to take the property if the borrower is unable to pay the loan.
A home loan, or a mortgage, is an agreement you enter with a creditor to receive money to purchase a house. Mortgages come in different shapes and sizes but at the end of the day its money to buy a house.
While paying back the loan, the creditor technically owns the property, but it is yours to use, assuming you make your payments on time. Typically, you will need to pay a down payment of 10% to 20% of the property value upfront.
Here are some important points to consider as you browse your options:
In order to apply for a mortgage loan for a home purchase, you will need to provide the following documents listed below. It may be best to speak to a consultant or a few loan officers to find a cheap or low-priced home loan with low rates. You will be able to estimate payments and loan terms before deciding on the best option.
When you decide to take out a mortgage loan, you want to make sure you are getting more than just a good interest rate. Here are a few tips to help you find the best lender for when you decide to purchase a home.
Compare rates from numerous mortgage lenders.
Once you’ve confirmed your credit score is strong and your assets are stable, you can begin to take the next steps and apply for a home loan. It is important to know what type of mortgage you want and the interest you are willing to pay on that loan. Follow the step by step guide to help you through your loan application.
If you are applying online, make sure you have addressed your loan concerns in person with a lender before moving forward. It is safer and more secure to meet with a loan officer or lender before agreeing to the financial responsibility of a mortgage. You will obtain valuable advice and information you may not find online.
Make sure you have researched and found the best loan for yourself and your home.
Find a lender you can trust and who will have your best interests at heart.
Loan processing will take about two weeks.
The underwriter will go over the loan documents to assess your level of risk when it comes to handling the loan in the long-term.
Once your loan has been cleared, you are ready to close the deal!
Mortgage refinancing is used to lower the interest rate of a home loan. It involves replacing your current debt with a new one, which may result in a lower monthly payment, canceled insurance premiums, and different repayment terms.
It makes sense that a product like this would exist since your finances are bound to change over time. Half-way into a 30-year fixed-rate loan, many borrowers find themselves in a different financial position than when they started.
Before you refinance your home loan, review three kinds of refinancing products:
One reason borrowers hesitate to refinance their loans is that they are worried about paying closing costs all over again. Some creditors make this easier by adding those costs to the loan. The downside is that the closing costs will end up costing you more, as they will become part of your loan, which is paid back with interest.
Equity refers to the amount you have already paid towards your home. When you have positive home equity, the amount you owe on your mortgage is less than the fair market value of your house.
With a home equity loan, you borrow from your home equity, or the difference between the value of your home and how much you have left on your mortgage. You will not be able to borrow all of it. Creditors will usually require you to have at least an 80% loan-to-value ratio, which means you cannot borrow to the point where you owe more than 80% of the value of your house.
For instance, if the fair market value of your house is $500,000, then your loan-to-value ratio could not be over 80%, or $400,000 ($500,000 x 0.8). If you had $350,000 left on your loan, that means you might be able to borrow up to $50,000 before reaching the 80% loan-to-value ratio.
A home equity line of credit (HELOC) is similar to a home equity loan, except instead of receiving the money all at once at the beginning, it is used more like a credit card, where you can borrow up to the agreed upon amount when you need it.
You use your home as collateral for both a home equity loan and a home equity line of credit. That means if you cannot pay what you owe, you risk losing your house.
If you do not want to use your home as collateral, another option might be an unsecured personal loan. Your personal loan agreement should not include any language about losing your house if you cannot pay back the loan.
Some of the reasons people choose a personal loan instead of a home equity loan include having a fixed interest rate, a shorter loan term, and a faster application and borrowing process. Negatives for using a personal loan include higher interest rates, larger monthly payments, and not being able to claim a tax deduction on the interest.
A reverse mortgage is very similar to a home equity loan, except that it is only for those who are at least 62 years old. It can be used to supplement one’s retirement income, offering either a line of credit or a fixed monthly payment to be paid back when the borrower moves away, sells the home, or passes away.
Those who use a reverse mortgage will see their debt increase as their home equity decreases. When the time comes for the creditor to collect the debt, the home will be sold (or, if the heirs choose to, there may be an option for them to pay off the mortgage and keep the house). If there is leftover equity after the debt has been settled (including all associated fees), that money will go to the heirs.
The most common type of reverse mortgage is the home equity conversion mortgage (HECM), which is insured by the Federal Housing Administration (FHA) and offered by private banks. The limit on how much you can borrow with an HECM is $625,000.
Other types of reverse mortgages include the single-purpose and proprietary reverse mortgages. The single-purpose option is geared towards lower income homeowners, and it has limitations on what the money can be used for. Proprietary reverse mortgages tend to be more expensive than other options, but they are less limited regarding what you can do with the money and how large the loan or credit can be.
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