Mortgage Loans

Mortgage Loans

Knowing Your Options When Applying for a Mortgage Loan

When applying for a mortgage, is a loan with a fixed or variable rate better for you? The answer to that question depends on your credit situation and how long you may own the home for. You will also need to know more about how much interest you will pay, the loan term and other stipulations in the loan to determine if a particular mortgage is best for you. What common loan types should you know about, and how can they help you keep your mortgage payment within your budget?

Conventional Mortgages are What Most Borrowers Apply For

A conventional mortgage requires a 20 percent down payment and is usually paid off within 30 years. However, it may be possible to pay off the loan within 10, 15 or 20 years if you think that you can afford larger payments.

Debt to income ratios are often no more than 29 percent before the mortgage and 41 percent after the mortgage payment is factored in. You may see this referred to as 29/41 when you apply for a loan.

The loans are paid off according to amortization tables that determine your principal and interest payment each month. Generally, the loans can be paid off ahead of schedule without any type of penalty. Interest rates are typically fixed for the life of the loan.

Many First-Time Buyers Opt for Government Loans

First-time buyers who have less income, fewer assets and less money available for a down payment may decide to go with an FHA or USDA loan. These loans offer up to 100 percent financing, which means a borrower may not even need a down payment.

Debt ratio and credit requirements are generally relaxed with government loans as they are guaranteed by HUD or the USDA. Borrowers generally need credit scores of 700 or higher with conventional loans. However, borrowers with credit scores under 600 could get approved for FHA or USDA loans.

You may also be eligible for such a loan even if you have recently gone through bankruptcy. In some cases, those with a current Chapter 13 case could still get a home loan depending on their financial circumstances.

Go With a Mortgage Broker Whenever Possible

When applying for a home loan, you should use a broker instead of a single lender if possible. Doing so ensures that a professional will look at all available loan programs available in your area. There may be several down payment assistance or grant opportunities offered by local or state government agencies that only a broker will know about. Such assistance could be worth thousands of dollars and make it easier to move into a new home without draining your entire savings account.

Getting a home loan is one of the most important steps in the home buying process. Without financing, you probably won’t be able to get that dream home even if you have equity in your current house. Therefore, make sure that you take your time to find a loan that fits your needs as well as your current budget.