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A home mortgage is a legal contract wherein money is offered by a lender to a borrower for the purchase of property in lieu of interest, fees, and other charges. Home mortgage loans are secured by the property. Thus, if the borrower defaults on the repayment, then the lender can foreclose the real estate and sell it off to repay the mortgage loan.
Purchasing a house is a long-term investment and prospective home buyers have to treat it in that manner. It is important to have a clear perspective and not depend on emotions. Buying a house is not something that one can easily get out of. Hence, you need to take into account all the factors that are involved in purchasing a home and taking out a home mortgage before making the final decision.
Shopping for a home mortgage loan
The current mortgage rates are in a constant state of flux. Therefore, the first offer of home mortgage made by a lender may not be the right one or the best one for you. It is really vital for home buyers to shop around, verify the current interest rates, read up on lender ratings and reviews, and compare offers of personalized home loans, etc.
The qualifications for getting approved for a home mortgage are different for everyone. But most lenders focus on the 5 basic parameters, namely, the household income, credit score of borrower, job history, the down payment, and the cash reserves.
Follow the below mentioned guidelines when looking to purchase a home:
- Find out how much home mortgage you can afford
- Get preapproved for the home loan
- Do not spend the maximum amount that you can afford
- Budget and plan for long-term maintenance and repair expenses
- Never let a real estate agent know that you love a particular house, else you will give the upper hand to the agent during price negotiations
- Never skip on inspection of the house
- Keep money aside for property taxes
- Find out the resale value
- Select the home mortgage product that is right for your requirements. The 30-year home loan with fixed interest may not be the right product for everyone, whilst ARM or interest only may be right for you.
- Get everything in writing. Verbal agreements are not considered legal.
What is the correct home mortgage for you?
There are different kinds of home mortgage products and what is right for your neighbor may not be the right one for you. You need to research and select the product that best suits your requirements and financial capacity. A few common mortgage terms that you need to know before selecting a home loan are mentioned below:
- Conventional home mortgage loans are offered by private lender and not insured by the government. Since it is not backed by the government, lenders generally have stringent requirements for conventional home loans.
- Government backed loans, like USDA, VA, and FHA loans, are insured by the government. If the borrower defaults, then the government pays the lender.
- Fixed rate home mortgage comes with payments that stay the same for the loan term. Adjustable home mortgage comes with an adjustable interest rate which varies according to the market rates. Thus, monthly mortgage payments tend to vary.
- Conforming home mortgage loans meet the standards (including home loan limits) set by Freddie Mac and Fannie Mae. Non-conforming home loans exceed the limits set by Freddie Mac and Fannie Mae and hence also known as ‘jumbo’ home mortgage. Most lenders offer the former as they are easier to sell and/or insure.