Everybody wants to have his own home wherever he lives. However, not everyone can have the cash to buy a house instantly. If you live in the US, though, several financial institutions extend a house loan to whoever is qualified. However, before getting one, here are the things that you must consider first before applying for one.
There are three types of rates for an amount that you borrow to pay for a house. These are the fixed-rate, variable or adjustable rate, and hybrid or a combination of the fixed and adjustable rates. A fixed-rate refers to an interest rate that does not change throughout the agreement.
If your mortgage is payable in 30 years and the interest rate is 30 percent that will remain the same until you have paid up your loan in full. One advantage of fixed interest is that the monthly payments will remain steady despite the changes in the rate of interest that the lending companies charge. One downside, though, is that the low monthly payments would require several years to pay up the loan.
On the other hand, a variable rate, which is also called an adjustable-rate, can change depending on the current bank rates. It can go up or go down. When it is up, borrowers must pay high interest, but when it is down, debtors can enjoy a low-interest rate.
The hybrid type of interest rate is a combination of the fixed-rate and the variable rate. You can pay the loan at a fixed price for several years and at a variable rate in the remaining years. One advantage is that after shifting to a variable rate, the borrower can have low monthly payments.
Type of Mortgage Loan
Another thing to consider is the kind of mortgage loan to use to acquire property, such as a house. The three types of mortgage loans are conventional, jumbo, and government-insured.
A conventional loan is one that a person can procure from private lenders rather than from a government entity. People that want to get a house loan can apply to Fannie Mae, a Federal National Mortgage Association. A similar lender is Freddie Mac, which is also government-supported.
A jumbo mortgage makes it possible for you to purchase expensive or luxury properties. The borrower can avail of an amount that is more than the limit set by the Federal Housing Finance Agency (FHFA). Also, some other requirements and taxes come with it.
If you opt for a government-insured or backed loan, the government guarantees to repay the loan if you cannot pay up the mortgage amount.
One way of making it easy to apply for a house loan is to prepare all the documents that you will need to get approved. You will need your tax filings for two years and bank statements for three months. You must explain considerable withdrawals or deposits.
Lenders observe the 28/36 rule when approving your application. Under this term, a borrower’s monthly house loan payment must not be more than 28 percent of his monthly income, while is payments for his other debts must not be more significant than 36 percent of his monthly salary. If you cannot meet this standard, you might have difficulty yin the approval of your application.
Enhancing your credit score is another thing to consider. Know your credit rating from the principal agencies that can provide the information. Make sure that you a high enough score to qualify.
If you have several debts, pay off some of them until you are sure that all your bills can only eat up 36 percent of your earnings. Avoid opening new credit accounts or getting a new loan because they can harm your financial health.
Your choice of a house to buy and its location can affect the approval of your loan Do some research about the property that you will buy. Back off from areas with a lot of foreclosed houses. The lender might think you would neglect your payments and allow your property the same faith.
Having your taxes settled and cleared is crucial if you are planning to take a house loan sometime in the future. You must submit tax returns for two years. Failure to have these documents can impede your dream of having your own house.
Once your loan is approved, avoid making big purchases before the release of the check for your house. When the lender knows that you are making purchases beyond your capacity, the loan might not reach the closure stage.
Once you have considered all these things and found them right, you are now several steps closer to your dream home. Making prompt payments is the best way to keep your home until you have paid off the mortgage, receive the title, and celebrate an outstanding accomplishment, owning your home.