What is in Loan
What is in Loan is a home loan, a business loan, an auto loan, a personal loan, a student loan, and credit cards.
Each type of loan has it’s own credit requirements, length of time, payment size, interest rates, and loan sizes.
A home or mortgage loan will be for most people the largest loan they will ever apply for, as a home is the largest purchase you will ever make.
I will describe how mortgage or home loans work, what is required to qualify, and where the best place I recommend to apply for these and other types of loans.
A home loan or a mortgage loan is the loan that is granted for the purchase of a home and it’s property. The mortgage is the agreement to utilize the home and property to collateralize the loan.
If the loan is not paid back according to the rules set forth on the contract, the lender can legally foreclose on the homeowner, and take ownership of the property.
There are five different types of mortgage lenders. These are banks, mortgage lenders, mortgage brokers, direct lenders, and credit unions.
Any mortgage lender looks for certain things to determine your credit worthiness to be accepted for a mortgage loan.
The qualifications include your credit rating, your income and time on job, your debt load in relation to your income, and the amount of your down payment. The lender will also look at the price of the home or property you want to buy.
Credit Rating Your current credit rating is a very important consideration for the mortgage lender. Normally, they want to see at least a 600 credit rating to begin the process.
There are certain exceptions where a lesser number is acceptable, but, if so this also usually means you will be charged a higher interest rate and/or more down payment will be needed, or higher front end or back end fees will be charged.
Income and Time on Job The amount of your income as well as where the income is generated, and length of time on the job are also important factors involved in qualifying for a home loan.
The more income you make the better, but if the home you want to buy is in line with your income, you may still qualify.
Lenders want to see if you have been on the same job for at least 2 years full time, and if your income is based on hourly or salary.
This is a preferable situation to being self employed or on a draw against commission, or a straight commission basis. This won’t preclude you from being approved necessarily, you will just have to show more proof of earnings, and establish a consistent pattern of earning.
Debt to Income Ratio Lenders want to see some debt, and a solid record of making your debt payments on time. This ability to pay is also often reflected in the credit rating.
The amount of debt should be very manageable in relation to the amount of money that your make. In other words, you should not have more outstanding debt than you can be reasonably expected to pay back. The more income you have of course, the better.
Down Payment You should have more than enough liquid cash or liquid assets to handle the down payment. Liquid simply means, ability to turn into cash quickly.
The lender may also ask you to see your total readily available cash, or how much cash you have in reserve.
The type of home loan and the amount of the home you want to buy will determine how much of a down payment is needed. For instance, a conventional loan will normally require anywhere from 10% to 20% of the price of the home as a down payment.
An FHA or Federal Housing Administration loan has lesser down payment requirements. They mandate a 3 1/2% down payment, and may offer assistance with closing costs. The more money you have for the down payment, the better the lender feels about granting you the loan.
Price of Home/Property The price of the home/property which is determined by the appraisal, is also a factor in granting a loan. The majority of lenders will not lend on a home that is valued at less than $50,000, and some lenders want to see even higher minimum values.
However, if the price meets their minimum, you are more likely to get a loan that is lower priced as this increases the likelihood that you will be able to handle the payments for the duration of the loan.
Types of Mortgages
There are various types and time periods or durations of home loans.
Fixed Rate Mortgage The method of mortgage loan that is granted from lenders the most by far is the fixed rate loan, or fixed rate mortgage.
A fixed rate mortgage is a loan with a fixed rate of interest lasting the entire predetermined period or duration of the loan. A fixed rate sets or locks your monthly mortgage payments at a consistent amount.
Easily the most common fixed rate loan time period is the 30 year fixed rate. Time or payback period of 15 years is also quite common.
Two-step Mortgages The two step mortgage has 2 differing time durations. The initial time period will be set at one percentage fixed interest rate, and the other time period will be placed at another fixed rate of interest.
As an example, the initial ten year period of the mortgage may have a fixed interest rate at 6%, and the next or subsequent ten year duration may have a fixed rate at 7%.
Combination Mortgage Combination mortgages or combo mortgages as they are also called, combine a fixed rate time period, and an adjustable rate term.
As an example, there are loans where the first period is at a fixed rate such as for a 5 year term, and for each year beyond that the rate turns into an adjustable rate for the balance of the time period of the loan.
Adjustable Rate Mortgage Also known as an ARM, the adjustable rate mortgage has a floating or variable rate of interest. An ARM’s interest rate can go either up or down, or stay the same, unlike a mortgage with a fixed interest rate.
Changes in an ARM’s interest rate can fluctuate based on changing economic conditions, market factors, as well as on the indicator it may be aligned with.
An Adjustable Rate Mortgage’s interest rate is usually somewhat lower to start than a fixed rate mortgage due to the possibility that it may go higher as time passes.
Balloon Mortgage A balloon mortgage will normally feature a fixed interest rate for a certain period of time, with relatively low monthly payments, and a substantial balance amount or balloon that becomes due at the expiration of the term of the loan.
The balloon can be a risky mortgage if the borrower does not plan for the large amount that will need to paid at the end of the loan period.
Best Place to Apply for a Mortgage Loan
The place that I recommend for you to apply for a home, auto, business, or student loan, and a credit card is at LendingTree.
Lendingtree is America’s largest, established, trusted, and reputable online lending marketplace that offers loan sources for all of your needs.
At Lendingtree, just apply once, and you can compare offers from as many as 5 lenders at once. Loans are available for a home purchase, for home equity, for a home refinance, as well as for reverse mortgages.
And, not to mention, it is 100% FREE, with no obligation for you to get quotes.
No need to worry about multiple credit inquiries affecting your credit score and rating either. As long as these inquiries are done within a short time period, less than a month, they are all treated as just one single inquiry.
LendingTree also facilitates auto, and business loans, as well as credit cards. You can shop and compare interest rates and terms across many different financial offerings right from the comfort of your home or office.
Thank you for reading, What is in Loan. Feel free to leave your comments, questions, and suggestions below. I will respond to you asap. Please also feel free to share this article on social media by clicking the buttons below. Good luck in your loan qualifying. Tom