HOME LOANS TIPS
What is Mortgage loan?
Suppose there is a house that you would like to purchase by paying a sum of $500,000. What do you do if supposedly you only have a saving of $125,000? Simple, you need to go to the bank to lend the remaining amount you need to purchase that house with the help of the 25% of the required amount that you already have. Now if the bank decides to give you loan inspecting and passing your credibility factors, the bank will hold the title of that house till the time you pay off the whole amount. So now you can pay the total sum to the seller and move into the house. But the title of the house will go to the bank that you are lending from to secure the loan. So this security is technically what mortgage is all about.
Therefore, pledging for the title of the home as a security for the loan is what mortgage is. The word Mortgage comes from the old French “mort” and “gage”, where “mort” means dead and “gage” means “pledge”. It means that the pledge of giving the title to the bank will eventually die once you will pay the loan.
Now when you go to the bank for a home loan, you need to be aware of certain things that can help you with the whole process. Take a look at the following tips to keep away any complications while applying for a home loan –
- BE PREPARED FOR YOUR DOWN PAYMENT – While applying for a home loan, you need to be prepared with a monthly budget that allows you to put away the required amount for your down payment. Roughly, the down payment for your loan can cost you about 2.25% – 20% of the purchase price of the home. Although, the amount can vary according to your lender and the type of your loan. Planning a budget can be of even more help if you consider having your money automatically deposited from your paycheck or bank account to a savings account to make it more convenient to put aside money every month.
- TAKE NOTE OF YOUR CREDIT SCORE – If you aspire to get the best deal on your home loan, you need to have a good credit score. Before actually starting off with the home buying process, make sure to get a copy of your credit report to keep a check on your credit score. Once you have a copy of your credit report, you can check what it looks like to potential lenders, giving you a chance to take steps to work towards it.
- PROPER DOCUMENTATION – When applying for a mortgage, your lender will require a number of financial documents from you. It is always a good idea to be prepared with the documents beforehand only. If you manage to assemble all the required documents beforehand, it can help you speed up the processing of your loan application. Some of these crucial financial documents will include your last two pay stubs, most recent W-2, your last two years of tax returns, and statements of your current bank and brokerage.
- MORTGAGE CALCULATOR – You can always check out some mortgage calculators to get an understanding of your finances regarding your mortgage. These tools can be quite helpful to give you an estimate regarding your monthly mortgage payment at different home rates, down payment, and interest rate.
- COMPARE OFFERS – Before finalizing on the type of your home loan, you need to be aware of the various components of mortgage pricing. All mortgages tend to differ from each other, despite having the same interest rate. You need to know and understand the different components that go into fixing the price of your mortgage so that you can actually compare the different offers for the loans that are available to you.
- KEEP A TRACK ON INTEREST RATES – One of the most influential factors that determine the cost of your mortgage interest rate. Interest rates for home loans keep changing every single day. Hence you need to start keeping a track of interest rates and the direction in which they are heading to make the best deal for your home loan.
- BE AWARE OF LOAN OPTIONS – Before finalizing your home loan, you need to have a clear idea about which loan type suits best to your needs. Some people prefer the predictability of a fixed-rate loan while others prefer an adjustable-rate loan. Each home buyer has his/her own unique financial condition and this is what makes it necessary to choose the loan type that suits you the best. You need not go by the loan type preferred by your friends or acquaintances. You just need to be aware of the loan options available to you and choose the one that suits you the best.
- KEEP A CHECK ON YOUR CREDIT DURING THE LOAN – During the processing period of your home loan, lenders might check your credit report for a second time to point out any defaults or changes that might have occurred since you applied for the loan. Hence it is advisable to keep a check on your score and not do anything that might prompt the lenders to bring down your credit score. During the processing of your loan, make sure to pay all your bills on time. Also, see to it that during this period you do not apply for any new credit cards or take a new car loan.
- MAKE SURE TO RESPOND TO THE REQUESTS OF YOUR LENDER – Once you have applied for a home loan, your lender might request you for some additional information. It is very important that you respond promptly to your lender and fulfill the requests as soon as possible. Delaying a response from your side will eventually cause a delay in your loan and cause further problems for you. Therefore, make sure to not put yourself in a position that might end up creating problems in your home loan.