FAQ’s Home Loans Credit

What exactly does home loan credit mean?

Home loan credit is any loan which is taken out against your home.  This could be a mortgage, or a line of credit, a second mortgage, a construction loan, or a second mortgage loan.  Home loan credit refers to any loan you take out from a lender that uses your home for security.  Home loans with no down payment are loans that are secured by the equity value in your home.

Why would I get a home loan credit line or refinance my current mortgage?

There are a number of reasons why people benefit from a home loan credit line, second mortgage, or refinance:

– To pay off other non-tax deductible interest bearing loans, such as car loans, credit card debt, or totalhome debt consolidation

– To fund other priorities in life, tuition costs, vacations, tax liens or required payments, business expenses, or other personal expenses

– To finance home renovations or needed improvements

What is the best rate I can get?

That is different for every borrower, the type of home loan credit they apply for, their personal home loan qualifications, as well as the amount of equity in the home. Another consideration is home loans with no down payment required, as in FHA home loans. Qualifying is based upon a number of contributing factors such as:

– Your personal credit score, referred to a your FICO score

– How long you have owned and resided in the home being refinanced

– The length you have been employed at the same job and the stability of your income

-Your amount of cash savings and reserves

Now that you are equipped with specific knowledge about the way that home loan credit rates are calculated, you will be better able to compare how your personal qualifications appear to the bank, and what rates and types of loans are available too you. A home loan credit line or second mortgage is most always priced with a higher rate than a first mortgage, and is generally for a shorter term.  As the first mortgage holding institution has the first claim to your homes equity and value in case of default, the lender that loans after that is at a greater risk for loss, and thereby charges a bit higher rate.

What is an Adjustable Rate Mortgage or ARM?

An adjustable rate mortgage is available in many forms.  When the prime mortgage rate is low adjustable rate mortgages offer lower rates than fixed mortgages.  This is because the lending institution will be compensated based on the prime mortgage rate at the time of adjustment.  Many different types of Adjustable Rate Mortgage loans (ARMs) exist with varying degrees of adjustments.  Arms are available for as little as one year, then adjust annually after that, or can be fixed at the starting rate for a period of 2,5, 7, or 10 years then adjust only once, or adjust annually after that initial fixed period of time.  The longer the ARM rate is fixed the rate rises to accommodate, so a one year arm will have a lower rate than a 5 year arm.

Do all adjustable rate home loans have an index?

All arms are tied to an index rate, most often prime rate, or  the LIBOR, and add a % charge to that index rate to determine your new rate at the time of adjustment.

Indexes created by the Federal Banks and Lenders are also used. The use of these different types of indexes causes the variation in the amount required for payments. The terms of the loans also vary due to these differences, and they add a % charge to that index rate to determine your new rate at the time of adjustment. Longer term arms that are amortized for 15 or 30 years tend to have a cap on the adjustment.  The most common is no more than a 2% increase in rate for any adjustment year, and an overall cap of the loan never exceeding more than 6% more than your beginning rate.

ARMS are very individualized based upon the different programs lenders offer, so be sure to understand the specific terms associated with any adjustable rate mortgage home loan credit product you are considering.

What other types of mortgagehome loans are available?

A common home loan credit mortgage is the Fixed Rate Mortgage. These interest rates are set at the beginning of the mortgage home loan and never adjust.  The borrowers payments remain the same for the duration of the mortgagehome loans term. The benefit to this type of home loan credit is that a homeowners personal house payment costs remain the same.  This type of home loan credit is unaffected by interest rate changes and inflation happening during the changes in the economy over the entire loan duration.

Is there special mortgage financing for first-time homebuyers?

Lenders offer several home loan credit affordable mortgage financing loans that can help first-time homebuyers.  The home loan qualifications are more flexible with a home loan FHA program.  Home loan FHA programs can overcome obstacles such as bad credit. Both conventional lenders and home loan FHA programs are able to help borrowers with no down payment, which is very helpful for those who don’t have a lot of money for the down payment and closing costs, or have quite a bit of long-term debt.  The home loans with no down payment in home loan FHA programs have easier home loan qualifications.

What factors affect mortgage loan payments?

Home loans with no down payment will of course be a bit higher than those who have put more money down and financed less.  Still, because these home loans with no down payment are all home loan FHA programs, the home loan qualifications are more lenient.

Payments are most effected not only by the amount financed, and the interest rate but also by other important factors.  The biggest factor is how long the life of the loan exists.  Thirty year mortgages are the most common amount of time loans are amortized over.  Second mortgages often use a fifteen year amortization period.

Still, other contributing factors to one’s monthly housing payments are the monthly amounts collected and escrowed (kept in a separate account) for taxes and insurance payment.  Some homes require more insurance, as is the case with homes required to carry flood insurance, or loans that are insured because there was less than a twenty percent down payment.  Home loan credit factors can also contribute to the monthly housing payment.

How does the interest rate factor in when applying for home loan credit?

Again, home loan qualifications factor into the largest role in determining the interest rate a borrower is eligible for.  Those meeting home loan qualifications with good credit ratings are eligible for more home loan credit amounts as the payments are lower with a favorable rate.  As loans with no down payment require the borrower to risk less, the rates are slightly higher.

How large of a down payment do I need?

There are mortgage financing loans now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you’ll have..

Home loan FHA programs are the most popular for those who have a desire to secure home loans with no down payment.  Other popular programs of the FHA require a three % down payment.

Conventional loans have home loan credit programs that require as little as a five % down payment.  But mortgages require a mortgage insurance policy if there is less than a twenty % down payment.  This insurance protects the lender by insuring the difference between the down payment amount and the eighty % financed amount.

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