Mortgage Loans

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WHAT TYPE OF HOME LOAN INTERESTS YOU?

CHOOSE BETWEEN HOME LOANS, REFINANCING, HOME EQUITY LOANS, AND REVERSE MORTGAGE LOANS.

What is a Mortgage?

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. Choose one of our partners above to get started.

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.

Home Loans

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 need to pay a down payment (around 10 to 20 percent of the value of the property) upfront.

Here are some important points to consider as you browse your options:

  • Overall, a 15-year loan will likely be cheaper than a 30-year loan. Although, the 15-year loan will be much more expensive month-to-month.
  • One of the key indicators a creditor will look at before offering you a mortgage is your credit score. This number also plays into your rate, which greatly influences the price of your loan.
  • Don’t let the bank tell you how much you can afford. Do the research yourself and remember: your monthly fees for your new house will include more than your mortgage. You also need to consider insurance, taxes, maintenance, utilities, and other expenses.
  • It is important to only work with reputable lending entities.
  • First-time home buyers will sometimes qualify for a special type of mortgage that might be cheaper than other options.
  • Unlike other financial products where the APR gives you a general sense of the cost of the loan, a mortgage includes other expenses of which you should be aware. Some mortgages require costly upfront fees and may start out with a good rate only to have it change later.
  • How long you plan to live in the house should affect the type of loan you choose. Long-term, fixed-rate loans tend to have higher interest rates. If you plan to live in the house for a short period, you may be better off with a mortgage that has a smaller interest rate at the beginning of the loan.
  • Low-down-payment loans exist, opening the door to options for those who have not been able to save up to purchase a house.
  • Choosing the right home loan is a very important decision, as it will directly affect many aspects of your life. However, even if you picked the wrong home loan the first time around, there are ways to remedy the situation. Mortgage refinancing is one such option.

What Do You Need to Apply for Mortgage Loan?

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.

  1. Tax Returns
    1. Loan officers will need to see your tax returns so they can assess your financial situation. Preferably, they want to see two years’ worth of your tax returns. The loan officer will want to see if your income is stable and consistent with your reported earnings, and there aren’t major changes from year to year.
  2. Pay-Stubs, W2, and Other Sources of Income
    1. Lenders will ask to see your pay stubs as another indicator of your financial health. If you are self-employed, you may need to show your mortgage lender a 1099 or a direct deposit.
  3. Renting History
    1. Mortgage lenders will want to see proof that you have been paying your rent on time and have been consistently responsible. They may ask your landlord to show documentation of rent history so they can determine whether you can pay a mortgage on time. The mortgage lender may also ask for a year’s worth of canceled rent checks.
  4. Photo ID
    1. You will need to provide a photo ID or some form of evidence to prove your identity.
  5. Credit History
    1. Mortgage lenders want to avoid issuing loans with bad credit. In order to determine whether you qualify for a home loan, they will pull your credit report. If you have any negative items on your credit report, you will need to address those with your lender. This helps them to evaluate your level of risk and if you can fully pay back your loan.
  6. Bank statements and other assets
    1. Another important factor that lenders look into is your bank statements and assets. This includes insurance, such as health, vision, and life insurance. Lenders will ask for these documents in order to make sure you have money put away in case of an emergency.

How to Compare Mortgage Lenders?

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.

  1. Get preapproved for your mortgage loan.
  2. Find out about requirements and interest payments before you accept the loan. Be sure to read the fine print before signing any legally binding contracts.

How to Apply for Home Loan Online?

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.

  1. Fill out a mortgage application
    1. If you are applying online, make sure you have addressed your loan concerns in person with a lender before moving forward. It is more safe and secure to meet with loan officers and lenders before deciding to take on a financial responsibility such as a mortgage. You will obtain valuable advice and information you may not find online.
  2. Review various loan estimates
    1. Make sure you have researched and found the best loan for yourself and your home.
  3. Choose a lender
    1. Find a lender you can trust and who will have your best interests at heart.
  4. Wait for the mortgage to go under loan processing
    1. Loan processing will take about two weeks.
  5. Underwriting process begins
    1. 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.
  6. Your loan is cleared
    1. Once your loan has been cleared, you are ready to close the deal!

Mortgage Refinancing

Mortgage refinancing is used to lower the interest rate of a home loan. It involves replacing your current loan with a new one, and it may result in a lower monthly payment, canceled insurance premiums, and a different amount of time left on the loan.

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:

  • Cash-in refinance – During closing, you pay down what you owe on the loan. This may help you avoid insurance premiums, and it may also reduce the interest rate associated with your loan.
  • Cash-out refinance – You take out a new loan with an increased amount owed, receiving the extra amount at closing. A cash-out loan is riskier for the creditor than other types of refinancing, which can translate to a harder approval process.
  • Rate-and-term refinance – You alter the term or rate of the loan. In some cases, both are adjustable. This is the most common type of mortgage refinancing.

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.

Home Equity Loans

Equity is the difference between what you owe on a loan and the value of the item you used the loan to purchase. 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 percent loan-to-value ratio, which means you cannot borrow to the point where you owe more than 80 percent 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 percent of that, 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 percent 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.

Reverse Mortgages

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 has limitations on what items for which you can use the money, and the product is especially for homeowners with lower incomes. 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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The offers that appear on OpenLoans.com are from companies from which OpenLoans.com receives compensation. OpenLoans.com does not make loan offers, but instead pairs potential borrowers with lenders and lending partners. We are not a lender, do not make credit decisions, broker loans, or make short-term cash loans. We also do not charge fees to potential borrowers for our services and do not represent or endorse any particular participating lender or lending partner, service, or product. Submitting a request allows us to refer you to third party lenders and lending partners and does not constitute approval for a loan.