Looking to get credit to build your dream home? Well, you need to make good research and also get your priorities right to make sure that you get the best home loan to build the home. There are many loan providing companies that offer loans to individuals. But not all loan providing companies have the same terms and conditions nor do they provide the same kind of service. Hence you must be careful and decisive whilst choosing the best home loan plans.
In this article, we will focus on some important aspects that one should focus on to get the best home loan schemes and avoid any kind of financial issues that might haunt them in the process. Let us now go through some of the essential things that one needs to consider to get an easy and effective home loan.
Essential Points to Focus on
Following are some of the essential points that one needs to focus on:
- Their Credit Score – The credit score of an individual plays a decisive role in ensuring the types of loans that an individual can avail of. It is a simple equation that those who do not have a favorable credit score will have a limited list of options. Hence, those who do not have a good credit history must find out ways to get it corrected.
- Down-payment – this is an important thing that must be taken into consideration to pay off the mortgage easily. It is quite simply a thing to understand that the more you pay on the down payment, the lesser you have to pay on the EMI’s and the easier it will be for you to pay off your mortgage. Therefore, the first thing that you need to keep in mind is to accumulate as much liquid money as you can before availing of a home loan.
- Savings and other details – there are a host of things that you need to keep in mind whilst seeking a home loan. Numerous things home loan providing companies focus on. The employment details, the amount of savings that one has, and others. Hence you need to make sure that you have a good amount stacked in your bank savings amount before you apply for the loan.
- Shop for home loan quotes – You must shop as much as you can to get home loan quotes. In this highly competitive market, one needs to make sure that they have enough options. There are numerous home loan providers in the market. Availing free quotes will certainly help you to choose wisely. Check the rates and the terms and conditions very carefully so that you can get the best plan.
These are some of the essential things that you need to keep in mind to find a good home loan plan. Good research as stated above can help in getting an effective plan. The last thing that needs to be said in his regard is that it is the merit of a loan that needs to be checked in the first place and not its price.
Home Loan Facts Worth Knowing
Would-be home buyers are frequently told to do research or get as much information about home loans and/or mortgages as when preparing to buy or build a house. So how can one be sure if the information gathered is true or not?
To help provide correct information to potential borrowers and future homeowners on matters about mortgage, below are three (3) common beliefs about loans and mortgages and the real facts behind each of them.
Fact #1: Bad credit history is okay as long as you settle it eventually
True. This is because one person may have a bad credit history at the moment, but as long as he is paying it off slowly but regularly, in the long run, he will be able to move from having a “bad credit history” to “good credit history”.
A credible borrower does two things: he settles his accounts payable on schedule; and he completes all the required repayments until such time that he settles his accounts completely.
The downside when one has a bad credit history is that it will always come out every time that person applies for a credit line, a loan, or even a telephone line connection. And because credit history is a record showing the credit reputation of the person, it will negatively affect his credibility; which in turn will limit his access to credit. This will remain true until the time he can improve his credit record.
Fact #2: “Income” and “Assets” mean the same thing
False. By the following definitions alone they are not the same.
“Assets” is defined in financial accounting as “any or all economic resources, or anything tangible or intangible that is capable of being owned or controlled to produce value, and that is held to have positive economic value”.
“Income” on the other hand is defined as “the sum of all the wages, salaries, profits, interest payments, rents and other forms of earnings received in a given period of time”.
Used in the context of getting loans and on credit applications, lenders generally evaluate the potential borrower’s ability to pay off the loan based on his income. So even if the potential borrower has lots of assets, the amount that he will be able to borrow is generally determined by his income and not by his assets.
Fact #3: In terms of loans, the cheapest is always the best deal
Not necessarily. It’s always helpful to research before making any decisions as to the type of loan to avail of. Make comparisons, and when doing this, look beyond the interest rates when determining how cheap the loan really is. This is because the lowest interest rate loans may not necessarily be the cheapest. Watch out also for fees that may look insignificant at the moment as these may substantially increase the amount you pay in the long run.
Different Kind of Home Financing
Many homeowners have realized that if they want to live up their life without worry about their financial situation, they should choose for home financing. Applying for mortgages to remodel your house is going to increase the value of your house. And just a matter a time, you will be shocking your neighbors with your brand new looking house.
If you are never getting any financial matter for yourself before, you should check out these home financing basics of which have been known by most Americans.
The Types Of Home Financing
Typically, a loan getting for home financing can be categorized into two categories: secured and unsecured. For an unsecured loan, it will have a fixed interest rate and time frame for the payment. Whereas for the secured loan, it does has a similar feature as an unsecured loan but with the difference that if you can afford to pay back the loan within the fixed time frame, the mortgage lender has the right to seize your home and sell it off so that they can raise funds for settling the loan.
By carrying out the projects of renovating and home improvements, the home itself normally will be used as the security equity for getting the mortgage. You will find a different document for pledging your property. It is actually known as a deed of trust or mortgage. Are you aware that you could pledge the same asset for more than one loan? In this instance, the loans are unambiguously rated in priority. This points out all the fuss regarding first and second mortgages.
Why do people want to apply for secured loans?
- To reduce taxes
- To get a lower interest rate
- To borrow for the maximum amount in home financing
The initial step should be for you to negotiate with your mortgage lenders regarding the options you have. You should know that mortgage lenders tend to concentrate on their options. Therefore, it’s a wise decision to start with an established mortgage company, as the company will very likely provide you with a range of loans and necessary information. Apart from this, your mortgage company may pre-qualify you for more than one loan since they tend to be well-versed with the rules of lending. For this reason, it’s better to go for an established mortgage company.
You should keep in mind that home financing mortgage lenders are always interested in your home value, debts, income, and also credit record.
What Are “Points”?
You will discover that a lot of loans come with something known as points. They are actually nothing but just a fee imposed on you for getting the loan. If you still confuse about points, they are actually denoted as the percentage for the amount that you borrow. The easy calculation will be one point equal to one percent. Lenders like to use points since points can help them to pay for any expenses incurred during the time of arranging the loan and they may make a little profit on it as well.
Different Kinds Of Interest Rates
For a fixed-rate loan, its rate of interest will remains unchanged throughout the whole loan period. You can find loans that the rate of interest can be rise or drop by following market rate, for example, is the prime rate. And for the adjustable rate is can be 2% points more compare to the current prime rate.
Choosing Your Mortgage Lender
You can find 3 different sources to apply for home financing. They are banks, mortgage brokers, and specialized lenders.
For banks, they work in case you have a good connection with the mortgage lender and the lender may agree to offer you a wide variety of options for your home financing.
Mortgage Brokers For Your Home Financing
Mortgage brokers are generally connected with local as well as national banks, specialized mortgage lenders, insurance companies, and even the wealthy entrepreneurs. Their assorted connections are always their specialty and best selling point. If choosing them, you can get a wide range of home financing options.
Specialized lenders are experts in an individual or a small number of mortgage loan types. Their particular area of expertise is their profound knowledge regarding the loans they deal with. They are really professional enough to provide your home financing with incredibly competitive interest rates.
For that reason, you should get yourself ready to change your house to become a dream home through home financing.
Fraud Alert – Home Loan Scams That You Must Avoid
A home is indeed the most expensive investment one can ever own and for cash-strapped homeowners, a home equity loan can be an effective way to obtain cash. However, with scammers mushrooming in the credit market, gullible consumers are at the risk of losing their biggest asset, home.
Financially vulnerable homeowners, such as the elderly retired people, members of minority groups, and people with poor credit ratings, are usually targeted by unscrupulous lenders and their desperate financial situations are often used as a pretext to use unethical lending practices.
Be aware of these fraudulent lenders, so that you can spare yourself the horror of foreclosure. Read on to know a few instances of home loan scams and few ways to identify them.
One of the most common tactics that are used to exploit homeowners is “equity stripping”. Here the cash-strapped prospective borrowers, who are struggling to meet their monthly payments, are encouraged to exaggerate their income on the application form to get the loan approved.
As soon as the borrower fails to meet the monthly payment, the lender seizes the property, stripping the borrower of all the equity in the home.
If you are a homeowner with limited means, beware of lenders, who encourage you to accept loans that you cannot afford to repay in the future.
One more common tactic applied by the fraudulent lenders is the balloon payment. A borrower who is falling behind in mortgage payments is often offered mortgage refinancing at a lower monthly payment. However, the truth is the payments appear to be lower because they cover only the loan interest.
At the end of the loan term, the entire principal remains due in one lump sum, called a balloon payment. If the borrowers fail to make the balloon payment or refinance, the home is foreclosed.
Loan flipping is another unethical practice of the home loan scammers. The company holding a home owner’s mortgage often suggests refinancing to give the homeowner extra cash, but at the same time charges high points and fees in return. The extra cash received is relatively lesser than the additional costs and fees charged for the refinancing.
Home Improvement Scams
Home improvement scams are pretty common. Often a contractor offers to install a new roof or remodel a kitchen at a price that sounds reasonable, and as an added benefit recommends financing through a lender he knows. Sometimes even the contractor attempts to get the homeowner to sign blank contract forms, with the promise that they will be filled in later when the contractor is “less busy”.
However most of the time, the rates offered are not competitive, and as soon as the contractor has been paid by the lender, he never shows any interest in completing the job to the home owner’s satisfaction. The victimized homeowner is left with unfinished or shoddy work and a large loan to pay off.
To protect themselves, from all these above mentioned deceptive lending practices, homeowners should follow a few guidelines.
Financially inexperienced homeowners should never agree to loans beyond the means of their monthly income; should never sign any documents before reading the fine print, and should never let any lender force them into signing a deal immediately. Never allow the temptation of extra cash or lower monthly payments to come in the way of good financial judgment.
Keep careful records of all payments, including billing statements and canceled checks which can help you to challenge the inaccurate charges of the borrowers.
You must consider consulting with a proficient accountant or an attorney before signing a loan. Last but not the least, remember, if a loan sounds too good to be true, it probably is.