If you are planning to apply for a home loan, there are various types of home loans available in today's financial market and each one comes with its own rules and regulations. Below you will find the top 20 secrets you should know when getting a home loan.
1.Know About Various Types of Home Loans
The competition in the loan market is rising day by day. Nowadays there are numerous loan packages which suit almost every budget. Some of the major loan types include:
One Month ARM's
Five Year Fixed ARM's
15 Year Fixed
30 Year Fixed
100% Home Equity Loan
VA Home Loans
Zero Down Payment Mortgage Loans
2.Select the Right Home Loan for You
What a customer needs to do is to research various home loans and know the benefits, interest rates and repayment schedules for individual loan institutions. Make sure you select the right home loan for you as there are so many home loans available on the market today. Don't apply for a home loan from the first loan company you meet, thinking that they are offering the lowest interest rates. Before applying for a loan, make sure that the loan is appropriate for you needs.
3.Down Payment
As a general rule of thumb, the majority of the loan providers will be seeking contributions from borrowers around 3% to 6% of the total loan value. Make sure that you are selecting the right one. As the competition in the home loan sector is increasing day by day, you can easily negotiate and get the right package for you.
4.Fixed Interest Rates Versus Adjustable Interest Rates
Fixed interest rates means that your interest rates will be fixed until the end of the loan period. On the other hand, adjustable interest rates (also known as variable interest rates), means that your interest rates for home loans will vary (increase or decrease) depending on the existing interest rates in the financial market. Before you apply for a home loan decide on which interest rate is the best one for you, that is whether you need a fixed rate or one which may decrease or increase each month.
5. Annual Percentage Rates (APR)
Annual percentage rates (APR) consist of principle, interests, fees, and all other costs related with the loan. Comparing the APR of various loan providers will help you to select the loan which best suits your budget.
6.Compare Home Loan Features
The majority of home loan customers exclusively compare interest rates, it is essential to compare home loan features as well. Keep in mind that, the more flexible your home loan is the higher the interest rates. A variable interest loan permits one to withdraw against repayments or offset savings against the loan, will also have a higher interest rate when compared with a standard home loan. So make sure that you have compared the home loan features.
7.Think Whether You Need a Redraw Facility
A redraw facility allows borrowers to make additional repayments on a home loan, and then have access to the additional repayments they paid earlier. However, these facilities are normally available only on Standard Variable loans which feature a higher interest rate than ordinary home loans. Think twice before applying for a loan with redraw facility as it is a little more expensive.
8.Loan Amount Qualification (Income)
This can differ according to you, your loan provider, and several other variables. However, as a baseline to decide on how much you can afford to borrow, have a look at two or three times your current household income. This will tell you how much of a loan you qualify for.
9.Loan Amount Qualification (Expenses)
This is another important category which changes from one loan provider to the other. However there are several factors to look at such as housing expenses, like insurance, property taxes, and mortgage and long term debt, like auto loans and credit cards.
To decide upon the loan amount expenses, take the sum of all of the housing expenses and long term debt. Make sure that the expenses don't exceed 33% to 36% of your total household income. The next step is to examine your housing expenses. Make sure that the expenses do not exceed 25% to 28% of your total household income.
10.Employment
The majority of loan providers need to take a look at your employment history so as to make sure that you have a steady and stable income. If you have a stable income then there will not be any problems in getting the appropriate loan amount.
11.Credit History
This is another factor which can positively or negatively affect your home loan. If you have good credit history you can easily obtain the loan, while if you have bad credit history then you may need to pay a higher interest rate for your loan.
12.Know about Points
Points are one of the major fees charged on the loan and they represent the profit earned by the lending institution. Points are generally tax deductible. One point means 1% of the total loan amount.
13.Select Carefully Between Points and Interest Rates
When choosing a home loan, a borrower has the option of paying additional points in exchange for a lower interest rate. Before making any deal you need to consider a few factors. If you are planning to stay in the house for a longer period of term, at least 6 to 8 years, then choosing the points will be the ideal option, this is because the lower interest rates will save you more in the long run.
14.Consider Sub-Prime Loans
These are loans which are exclusively designed for those people who are burdened with credit and financial difficulties. These loans are also great for those who are looking to reestablish their damaged credit. If you fall under any of these categories it is a good idea to choose sub-prime loans. Though the interest rates of these loans are slightly higher than normal loans, these loans help you to reestablish your damaged credit history, or purchase a new home before cleaning your credit history. Generally these loans are offered on a short term basis like 2 to 3 years.
15.Consider a Portable Home Loan
A portable home loan is one which allows you to sell one property and move to a new one without refinancing your loan, that is, if you pay off the old loan and take on a new loan. This will save you a considerable amount of money, such as no application fees and legal fees. However, most home loan providers insist that the new home loan amount required must be less than the existing loan amount.
16.Get Professional Help
Even though websites offer buyers a large access to home listings, it is still a good option to seek the help of a professional. Look for an exclusive buyer agent who can provide you enough help with your home loan needs.
17.Shop Around
Many people are not aware of the importance of shopping around to find the best home loan. However it is quite essential to shop around as it helps you to know more about the home loan packages and interest rates offered by various home loan providers. This helps you to select the right deal.
18.Get Online Quotes
Nowadays most of the loan companies offer free online quotes. Ask for online quotes from various home loan companies and compare them to know which one suits your needs the most.
19.Read Reviews
Reading reviews of websites which offer home loans will help you to know what their previous borrowers have to say about them. Reviews are quite important as they are posted by those who have previous experience with a loan company. Try to read reviews before you select any loan provider.
20.Search Online
An extensive search online will help you to find the top online home loan providers. Don't go with the first result displayed by the search engines. Go through a few websites and read their terms and conditions. Spend some time to learn more about the company and its services and then pick up the deal which suits your needs.
You are now aware of the top 20 strategies for searching and applying for a home loan, so what are you waiting for, apply for a home loan today.
By : Scott White
