Home Mortgage Options for Today’s Economy
There are many reasons to buy a home these days, and it is a buyer’s market out there. A home means security to many people, and it marks a milestone in a person’s life. Even with the state the market is in right now, it can be a great investment to buy a home; it’s going to clear up eventually, and prices are at an all-time low today. Whether you are just thinking about investing in a home for financial revenue, or you are looking to settle down, you must be considering a mortgage.
A home mortgage is one of several types of home secured loans. In other words, you borrow against the value of the home you are purchasing, and if you default on the loan your home will be taken to repay the debt. A mortgage is a big decision that takes a lot of research, planning, and preparing. There are many different facets of a home loan to consider, even before you actually apply for one. You will want to research what types of loans are available to consumers and what will best fit your needs. This ties in closely with the reason for your decision to take out a home mortgage in the first place, and that is something you should also take into account. It’s a good idea to start preparing to apply for you mortgage at least six months before you start shopping for one.
Prepare for a Mortgage
When you are ready to apply for a loan, you should gather documents and figure out what kind of savings you have. Documents like tax returns and W-2 forms will help to verify your income, along with any pay stubs and invoices you have. You will also benefit from having a record of your monthly debt load. Things like personal loans, credit cards, and car loans will all factor in to the total amount you have available to repay a mortgage. Also, evaluate your savings, and decide how much of it will be available for a down payment. The ideal percentage for down payments is about 20%, but 10%, or even 5%, is acceptable. You will need some of your savings for other costs, including an inspector, a broker, insurance premiums, and closing costs. Obviously, saving up and getting bills in order will take some time. Your credit will likely need some fixing up, too.
Credit and LVR
When being considered for a home loan, your credit score and history usually determine the LVR, or loan-to-value ratio, of the loan; and the percentage rate you will pay from year to year. This is why planning is important. As soon as you decide that you want to purchase a home, you should begin to prepare your credit to give you the best possible chance at finding and qualifying for the loan that will cost you the least. There are a few ways to get your credit rating up, if you are careful with your debt to credit ratio for a while before applying for a loan. Get a credit card with a low balance that you will use and pay off right away; to buy groceries each month, for instance. Pay all your bills on time for at least six months before applying, and try not switch jobs too often for a few years prior. Most times, a homebuyer with decent credit borrows at between 90% and 100% LVR. However, there are situations when a buyer can qualify for a higher LVR.
Another type of home secured loan is a 125 home mortgage. In some cases, with excellent credit scores and a well-documented income, you may qualify for a loan with an LVR of up to 125%, commonly referred to as a 125 home mortgage. When you are in need of refinancing or consolidating your outstanding debt, a 125 mortgage could be a possibility to take into consideration. Sometimes, you can use this type of loan for home improvement, which will increase the equity or value of your home. Other times, these loans can be used to acquire valuable assets in order increase your personal value, and strengthen your financial profile. Another use for a mortgage of this type is to consolidate high interest credit card debt, as the interest on a mortgage is generally much lower. In some cases, mortgage interest is even tax deductible, whereas credit card interest is not.
Bad Credit Loans
If your credit score is not up to par, it can be difficult to get a home loan, but it is possible. You can do some shopping around and find home mortgages for people with bad credit, but they will most likely cost a bit more than a conventional loan, because getting a loan with sub-par credit usually means higher interest rates. However, with certain stipulations, bad credit home mortgage loans can be beneficial to your financial profile, offering a chance to clean up your credit report. It’s a good way to go if you need to get out of a bad situation, like looming foreclosure, but you have to make enough money to keep up with the payments monthly. Try to keep in mind that defaulting will only put you in a deeper hole.
Refinancing a Home Loan
With the recent bursting of the real estate bubble, partly due to Home Finance Corporation loans and Countrywide home mortgages, many homeowners are looking for a way out of homeownership, rather than a way in. If this is the case for you, and your credit has suffered the brunt of the economic downfall, you may want to think about refinancing first. Refinancing can save you a lot of money and heartache, but there are criteria you must meet. Some things to consider with refinancing are your credit score, your debt to value ratio (DVR), and whether your income can be verified. The credit score you need to get the best refinance home mortgage loan rate is generally around 740 or higher. It may be possible to qualify for a loan of this sort with a lower score, but remember, the lower your credit score, the higher the home mortgage refinance rates. Plus, a refinance loan is just like a new mortgage, so you will probably end up paying closing cost and broker’s fees all over again.
Mortgages and home loans are complicated beasts, so before you make any decisions, do your research and shop around. You should always narrow down your search to two or three lenders who have the best deals on loans that fit your needs. Once you’ve done that, compare every detail. If you go into the process well prepared, you can really save yourself a lot of money. Knowledge is power, so know what your home is worth, and what the current trends are. In today’s market, mortgage rates are at an all-time low, nearly 4%, and renting is much more expensive than owning now. You have the potential to make a good investment that will secure your future, and many investors even manage to turn a profit. Still, you must be careful and make educated choices. Going into a mortgage unprepared is like diving in a shark tank with a bloody nose: “Very risky business!”