What Type Of Loan Is Best For Me

Loans

It can be very difficult to find the home of your dreams, but it can be even more difficult to choose a loan that is suited for you specific needs.  There are many different types of loans that are available depending on your situation and the length of these loans will also vary depending on what your income is and several other factors.  It is important that you do your research and become very familiar with the different types of home loans that are available before you sign on the dotted line.  If you do not know all of the details of your home loan, you could regret your decision for years to come.

 

Loan Prequalification

One thing that you should consider doing before you start looking at homes to purchase is to get pre-qualified for a home loan.  This can prevent a very embarrassing situation that could happen when you are trying to purchase a home.  You do not want to sign a contract on your dream home and then have the lending company tell you that they will not be able to approve the loan because you do not qualify for a home loan for one reason or another.  By getting pre-qualified for a home loan, you will know exactly how much money you can spend on purchasing a home and you will also know that you will be approved for the loan when it is time to close on the home.

Loan pre-qualifications will determine if you have the financial ability to invest in a home or any other type of real estate property.  If you have the right pre-qualification, you can be guaranteed a specific amount of money and there will be nothing stopping you from moving into the home of your dreams.

The first thing that most lenders use during the pre-qualification process is how much money you earn each year from your employer.  By knowing this, it will allow the lenders to determine how much you will be able to spend on a loan payment each month with regards to all of your other financial commitments.  All of your personal debts like car loans and credit card expenses will be used to calculate an exact figure that will be used to help the lenders determine what type of loan is best for you.

Once all of these different items have been factored in, the time frame in which you will pay your loan will also be factored in.  This will give the lending companies a good idea of how much you will be able to pay and also how this will relate to the debt and finances that you already have coming out of your pocket every month.  All of these factors will be determined by using formulas that will relate how much money you are making in relation to how much you will be able to pay toward the balance of your loan.  This means that the lenders personal feelings will not play any part in determining how much money you will be approved for.

If you want to take the right step toward choosing the right loan, the becoming pre-qualified is the first thing that you should do.  This will allow you to move forward and not have any fear of being turned down for a loan during the closing period.  By knowing what to expect, you will be able to properly prepare for the process of applying for a loan and moving into the home of your dreams.

 

Ten Loan Terms That You Must Know

Everyone knows that you should never sign a contract without first reading it.  This is especially true of signing into a loan because you could end up losing a lot of money if you do not understand what you are signing.  There are several terms that you should know and also understand how they will apply to your specific situation before you ever sign on the dotted line.

  • Interest Rate – The interest rate is the percentage of your loan that is added on every month and this rate will vary according to the economy and your credit.  The interest rate will make a difference in your monthly payment.  The higher the interest rate is, the higher your monthly payment is going to be.
  • Fixed Rate – A fixed rate is an interest rate that will remain the same for the entire length of your loan.
  • Variable Rate – A variable rate will change according to the economy and the charts that state what the rates should be for interest.  A variable rate will usually change every year and will adjust according to a specific given range of percentages.
  • Principle – The principle is the amount of money that you will be paying on your actual house.  The amount that you pay on your principle is what you will see in the end as your investment.
  • Escrow – The escrow is very similar to a savings account of your loan.  The amount that you put in escrow will accumulate without paying directly into the loan.  At the end of the term, you can use it to finish paying off the loan or you can invest it in another loan.  This is also how most home owners choose to pay for their home owners insurance and the taxes each year.
  • Title – The title is an official piece of paper that will be issued to you after you have finished paying for your home.  The title will state that the property belongs to you.
  • Deed – A deed is most often used as a title for a commercial area.  Instead of giving ownership, it will show that the given property is leased to the person who is using it as a business.
  • Home Equity – This is a lone or line of credit that you can get for your home.  It will finance up to eight percent of your other loan and will be paid back at a later date.  This is a good loan to use if you want to consolidate loans or invest more into the property.
  • Appraisal – An appraisal is an estimated value of what a home is worth and is determined after an inspection of the home is made.
  • Equity – Equity is the actually amount of the property that you own, most likely, it is what is being paid off of your principal amount when you make your monthly payments.

 

It is important that you know the meaning of these basic terms so that you will be able to expand on your knowledge and be able to find the exact loan that will best fit your needs.

 

Deciding on a Loan

Deciding on the type of loan that you will benefit the most from is not always an easy decision.  Usually there are several loans that have their benefits and downfalls.  What you have to decide on is which loan has the most benefits and the fewest downfalls for your specific situation.  Before you sign on the dotted line, you will want to make sure that you carefully evaluate you individual needs and wants.  The main purpose of a loan is to help you financially in more than one way.

One thing that you should consider when deciding on a loan is how long you plan to stay in a particular area.  If you do not plan on staying in a particular area forever and plan on moving after a few years, you will want your records from the loan to show that you have invested in the property.  In this particular situation, you should try and borrow a loan that will allow you to pay unlimited principle while you are there so that you will be able to benefit from your investment when it is time to move.

Another thing that you have to consider when deciding on a loan is how much you will be able to pay on the loan each month.  If you are able to pay a large amount every month, then you might want to consider a more stable loan that has a fixed interest rate.  On the other hand, if you are not in a financial position that will allow you to pay a lot now, but you know that later on down the road you will be able to pay more, you could get a loan that will increase by percentage rate over time.  You could be in a situation where you expect your income to increase over time.  If this is the case, you could consider a balloon.  This type of loan will have you pay a large amount during the closing of your home.

It is important for your financial well being to choose a loan carefully.  If you are not sure what type of loan you will be able to benefit the most from, your lender will always be available to help you with all of your concerns and to answer any questions that you will have throughout the process.  By keeping yourself open to all of the different options and understanding your financial position, you will be able to invest your money the right way and you will be able to build your investments into larger profits over a period of time.

 

Types of Loans

Many people think that when it is time to apply for a home loan that there is just one standard loan type that everybody applies for.  It would be a much simpler world if that were the case, but it is not that simple.  There are several types of home loans available that you can apply for if you are purchasing a home and there are also home loans available that you can use to finance home improvements or to consolidate all of your bills.

 

Balloon Loans

Balloons are a type of loan that will give home owners a lower monthly payment by consolidating a specific percentage of the loan each month.  At the end of the loan, you will have to pay the additional percentage that is left.  Normally, this is equal to about fifty percent of the original amount that you borrowed.

Balloons can defiantly work to your advantage if you have the correct finances in place.  If you do not have a large amount of money at the beginning of the loan, but you know that at the end of the loan you will have an excess of cash, then having a balloon loan will be able to save you money now (when you need it) and it will also give you the opportunity to build your credibility with financial investments later.

If you do not know what your financial situation will be in a few years, then a balloon loan could actually cause you more harm than good.  You will be expected to make a very large payment at the end of the loan and if you do not have the money that is needed, you could end up in debt and you would not be able to make a future investment on another house.  In relation to this, if you are making a specific amount of money now, but you know that you will be making more in the future, then you could use a balloon to stabilize you financial condition and start earning a return on an investment.

Balloon loans can be a great option for individuals who are short on money now, but know that they will be rolling in cash later on down the road.  By using a balloon, you will be put into a situation where your monthly payment can more than double at the end of the term.  By understanding all of the ups and downs of balloons and being realistic about your own financial situation, you will be able to find the best outcome to your specific situation.

 

Interest Only Loans

One of the major types of loans that are offered to individuals today are interest only loans, but what is an interest only loan?  An interest only loan is a type of loan where you will first pay off the interest that is added by the lenders as a percentage to your loan.  Once all of the interest is completely paid off, then you will start paying on the principle amount of the house.

If you are considering borrowing an interest only loan, you will want to make sure that the standard interest rates at the time you take out the loan have a lower percentage.  When you are choosing an interest only loan, it is important to know that there are two types of interest rates that may be applied to your loan.  The first type of interest rate is a fixed interest rate which means that the percentage you pay will remain the same the entire time that you have the loan.  The second type of interest rate that is available is a variable interest rate.  This type of interest rate will fluctuate according to the current economy.  This type of interest rate can be beneficial because there will be times when you will be paying a smaller monthly payment, however there will also be times when you could be paying a very high monthly payment and if your financial situation will not allow for large changes in your monthly payments, then a variable interest rate loan would not be the best option for you.

The interest rate that you get with an interest only loan will initially be determined by the lender and how they decide to set up your loan.  The amount of the down payment that you make toward the purchase of you home and the rules that are set into the loan will also have an effect on how much your monthly payments will be.  If you want to ensure that you are getting the best possible deal, then it is important that you know and understand what all of the individual rules are.  If you do this, you can make sure that your payments are going to be beneficial to you as well as everyone else.

 

Home Equity Loans

Home equity loans can be very beneficial to people who want to make repairs to their homes or who want to consolidate all of their bills into one monthly payment.  A home equity loan is a loan that will allow you to borrow money against your first home loan.  For example, if you already have a home mortgage, you can take out a second loan against the first mortgage, known as a home equity loan.  You will be able to borrow up to eight percent of your first loan in order to accomplish your investment goals.

Home equity loans can be used for many things besides home repairs and bill consolidation.  You can use home equity loans as a way to invest in your home so that it can be improved which will allow you to make a larger profit off of the changes that you make to your home.  If you choose to use a home equity loan to consolidate your bills, you will be building up your credit which will result in a higher credit score.  This will give you a better standing when you are ready to make another investment.

One thing that you must consider before borrowing a home equity loan is whether you will be able to profit from it.  Many people will borrow home equity loans and not be able to make the payments on them.  This will only add the debt that they already had and will damage their credit in the process, making it very difficult to make future investments.  Because the loan is taken out against your home, if you are not financially stable and able to make the required payments, you could end up having your home repossessed by the lenders.  It is very important that you understand all of the risks that are involved in home equity loans before you sign on the dotted line.  If you know all of the ropes of this type of loan, you can easily benefit from the various things that it has to offer.

 

Home Equity Lines of Credit

It seems like you are always spending money just as fast as it is coming in and sometimes you will be forced to spend money faster than you can earn it.  One way to ensure that you will always have a steady flow of money when you need it is by applying for a home equity line of credit.

There is a difference between a regular home equity loan and a home equity line of credit.  With a regular home equity loan, you will be given a lump sum of money all at once.  With a home equity line of credit, the balance will shift as you pay back the loan.  You will be approved for a certain amount and you will then be able to borrow the entire amount or a portion of the amount.  As you repay the amount that you borrowed, the amount that is available to you will increase, much like a credit card.  With a home equity line of credit, you can borrow the amount that you need at a particular time and leave the rest in the bank for future use.

The major advantage of having a home equity line of credit is that you can use it just like a credit card.  Once you have been approved, you can use as much or as little of the amount that you like.  If you choose not to use the entire line of credit, you may use the money later on down the road to make more investments.  If you decide to sell your home, you will only be responsible for the amount that you have spent with your line of credit, not the entire amount that you were approved for.  Another advantage of using a home equity line of credit is that it is not a risky as other types of home equity loans because you can only take out the exact amount of money that you need and you will have the ability to pay back the money as you want.

 

Loan Divisions

Any type of loan that you borrow will have different divisions that will determine how your monthly payment is applied.  If you know what all of the different loan divisions are, you will be able to make an informed decision when choosing a loan that is best for your specific financial situation.

The first way that a loan will be divided is by the principle which is the amount that you will pay toward the homes total worth.  With every payment you make, you will be paying a percentage of this amount.  The second division in most home loans is the interest rate.  This is the percentage of your monthly payment that the lending company will keep because of their ability to loan you the money.

Each different type of loan that is available will have different rules in each division that will determine how you pay both the principle and the interest.  All of the different rules and regulations will determine the way that your payment is applied to each of the divisions.  There are different limitations for timing and the amounts of money that you are able to pay are both added into the loans.  This could mean that the interest rate or the principle will change over a specific amount of time.

The main thing that you will need to consider is how you will be paying off your home and where your money will be going.  Each different part of the loan will be an investment that will show your ownership of the home at some point in time.  If you want to ensure that you are getting the best deal that is available to you, it is important to make sure that you understand how each different part of the loan will work.

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