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House Loans And Mortgages
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Make sure you know the details of the mortgages you are considering. Mistakes can cost you money.
It's the American dream, the goal that millions strive for. It is also the largest investment that most people will make in their lifetimes and is one of the least understood investments that most people will make. House loans, or home loans, are the financial tools that 60% of the American population will use at one time in their lives to achieve that goal of home ownership. Sadly, most of them have no idea of the structure of a house loan or what their options are when it comes to financing a home.
Let's start out with terminology. The basic individual home owner will use a financing tool called a home loan. This is also known as a house loan, a mortgage, a home mortgage and a house mortgage. Whatever the name (it will depend on your area and your lender as to which name is used) the concept is the same: you pledge the value of the home for a certain amount of time (anywhere from 5 to 30 years) against a loan that enables you to purchase your home. The lender will hold the title to your home until you have satisfied the terms of the loan, meaning that you make monthly payments until the principal is paid off. Sounds simple, right? Well, yes and no. It is simple if you just make straight payments for the length of the loan. It gets complicated if you refinance, if the monthly payment includes an escrow amount for taxes and insurance, if the home value changes and if your life takes unexpected turns. In other words, a house loan is a very complicated simple loan.
Apply For A House Loan
Step one is obvious but most people make the mistake of finding a home before applying for a loan. It is easy to fall in love with a house without knowing if you can actually afford it. Step one must be meeting with a mortgage broker or lender and determining what you can afford. A knowledgeable mortgage broker or lender can show you the different options that are available to you, explain the terms and repayment plans and determine what type of loan and how large a payment is best for you. You may be better off with a fixed rate loan, an FHA loan or an adjustable mortgage rate. For some buyers a 20 year loan is best, for others it may be 30 years. Your lender will also work with you concerning your down payment, potential closing costs and other cost issues that come with a house loan. This is critical information when it comes to buying and financing a home.
House Loans For First Time Buyers
Is this the first time you have bought a house? If so, you may qualify for special financing packages and loan rates. The Federal Government has always encouraged home ownership and first time buyers usually get special treatment when applying for a mortgage. Almost every major lender, including banks, have programs designed to get first time buyers into their new homes. Be sure to have your broker or lender explore your options if you are a first time buyer.
Paperwork, Paperwork, Paperwork
Despite being in a digital age, the typical house loan generates large piles of paperwork. Whether this is your first mortgage or you have gone through the process many times, be ready to fill out forms and to present documents to back up claims or prove income. Some studies have shown that the typical home mortgage process can take up to 40 hours of work filling out forms, finding the proper documentation and responding to lender's requests for more information. This is not a process you will finish in 20 minutes on the computer.
All lenders will require a set of basic documents and information. You will need to prove citizenship, provide a social security number , proof of income and a property evaluation. These sets of information are available to most borrows quite easily but be ready to present them often during the lending process. Other forms of information that may come up during your loan process will be tax returns, estimated real estate taxes on your (hopefully) new home, estimated insurance costs, any negative credit issues (bankruptcy, late payments, liens), legal issues pending, length of time at your job and other issues that the lender may want to look at when deciding the basic issue of whether or not you can afford to pay back you house loan. Be prepared to present documentation for every question asked by the lender. They won't just take your word for it.
Depending on your experience with finance and house loans, you may decide to use a mortgage broker to find the best loan for your needs. If you have a good relationship with your bank you may want to use them to source your home loan. After all, they know you and you keep your money with them. Both options are good and both have some limitations. It is up to you to decide which works best in your case. A mortgage broker gets paid when he is able to sell your loan to a lender. The benefit of using a broker will be their wide variety of lending options. They usually don't work for a specific lender so they will present your loan request to a wide variety of mortgage companies and lenders. If you have credit issues they may be a better option for you as they will have access to lenders that are more willing to write a house loan to someone with less than perfect credit scores. The down side is that a mortgage broker probably won't have deep business relationships with any lender and won't have the option of going to bat for you if a lender rejects your loan request.
Your banker will try to source your loan with the bank's home loan division. While most bank's offer extremely competitive rates and terms, they are working with only one lender, themselves, and may not be able to write your loan if there are credit issues. However, because they write their loans internally, they may be able to work with you to get you qualified, even if the first loan request was denied.
Keep in mind that you are signing papers and making a commitment to the largest financial decision in your life. Don't get caught up in splashy commercials and marketing claims, do your homework and understand what your are signing up for. Having a 30 year mortgage for $250,000 at 5% will cost you $27, 123 more than the same mortgage at 4.5%. Be smart, do your homework and make sure that you take out the proper house loan.
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