Home Mortgage Loans – Navigating the Labyrinth

Home loans can be very confusing, considering how many different types there are. Unless you’re a mortgage expert, it can be daunting to wade through the home finance maze to decide which product is right for you.

To select a loan, it is important to clarify your objectives. Are you looking to buy a house? If so, do you intend to occupy it yourself, visit it occasionally as a second home, or rent it as an investment? Maybe you already bought the property and are looking to refinance. That means getting a brand new loan. That’s similar to getting the mortgage loan in the first place. Or maybe you’d like to leave the original loan in place, but add a second mortgage in the form of a home equity loan or home equity line of credit.

Let’s start with buying a house. The cheapest and most accessible loans are owner-occupant loans. That means your plan is to live in the house yourself. Lenders trust the performance of these mortgage loans more than any other because it is assumed that homeowners will always honor their personal residence loan before investment properties, or those homes they only visit once or twice a year. In theory, when one finds himself in financial trouble, the last thing he would stop paying for would be the house he lives in. Therefore, these loans have the best terms and are the easiest to obtain. There are many loan products available that don’t even require a down payment, and some banks partner with government agencies to assist first-time homebuyers with down payments and a reasonable payment plan for those who qualify.

The next best type of loan program is for second homes. Second homes are also known as vacation homes. These home loans will have slightly less attractive rates than owner-occupant loans, but still better rates than investment property loans.

Mortgage loans for homes purchased for investment purposes are the most difficult to obtain and generally have the least attractive terms. They almost always require a down payment and the required evaluations tend to cost more. This is because the appraiser must not only provide an opinion on the value of the property, but also an assessment of how the unit will fare as a rental. Fewer lenders are generally willing to finance investment homes, and those that do may require additional qualifications for the borrower, such as a minimum of two years’ experience as a landlord. These loans are considered riskier due to the greater likelihood that an investor will “walk out” (foreclose) on the home if it does not produce rental income or is uninterested or unable to continue making payments. Sometimes the expensive *mortgage fees* that come with these loans can be lowered by putting more money down, reducing the lender’s risk.

If you already have a loan and are looking to refinance, there are two basic types of home mortgage refinancing. [http://lasertargeted.com/mortgage/home-mortgage-refinancing-contract.html]. One is rate and term, which lowers your interest rate and extends the loan’s due date (amortization starts over, extending the time you have to pay off the property). This is a great way to take advantage of rates that are lower than when you originally got your loan. The amount of a rate term refinance loan is enough to pay off the existing mortgage balance, although there will be some closing costs included (this will vary from loan to loan, check with your mortgage broker or lender for details) .

If you intend to take cash out of the home, a cash-out refinance can do so if there is enough equity in the home to meet the lender’s LTV (loan-to-value) requirements. Not all homeowners will be eligible for a cash withdrawal, depending on what is owed on the home and its current value. This type of refinancing will increase the loan amount by the amount withdrawn, plus closing costs, and may result in higher payments.

Adding a second mortgage can present an alternative to a cash-out refinance. This also requires that there is enough equity in the home to add another lien without compromising the lender’s LTV requirements. A home equity loan provides one-time cash and usually has a fixed rate. A home equity line of credit (HELOC) can be used as needed, and payments are only due on the amount used. HELOCS has adjustment fees. Both types, being second mortgages, have higher interest rates than a first mortgage. This is due to the higher risk for the lender. In the event of foreclosure, the former must be paid before the latter, so the lender must price its products accordingly.

Before obtaining any type of mortgage financing, seek the advice of a mortgage lending professional and be sure to get all of your questions answered. There are many loan products available, so choose the one that best suits your needs.

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