Saturday, October 1, 2022

Home Loans – Important Factors You Need to Consider

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When applying for a home loan, you should be aware of the various factors that are essential and must be considered. 

These factors include aspects like: 

  • Payment amount and frequency
  • Interest rate
  • LTV

In this blog post, we will look at the things you should know about home loans. To speed up the process of getting a loan, make sure you have the required documents with you. Another straightforward way is that you can apply online for a home loan. In either case, you should be prepared to provide a complete and accurate list of documents. The documents should be accompanied by proof of your income and assets.

Principal

In recent years, the government has been pressuring lenders to let borrowers reduce the principal on their home loans. This can be a great way to increase equity in your home and lower monthly repayments. However, it’s not always easy to estimate how much you’ll be paying each month. One way to estimate your principal is to do a quick math calculation. Most loans have a set term of more than 20 to 30 years. After you pay the interest and the principal, you’ll have less money to borrow in the future.

 

The Interest Rates

The federal and state banks have raised the minimum interest rate for home loans. The new interest rate is actually based on a benchmark that banks use to set their lending rates. In addition to the fluctuation and rate hike, the banks and home loan institutes also add a credit risk premium over the standard benchmark. It is important to consider every financial aspect before taking the loan. You need to also keep in mind other extra costs like water heater repair and other maintenance costs after you’ve chosen the house. 

 

Loan-to-Value LTV

The loan-to-value ratio (LTV) of home loans refers to the proportion of the total mortgage balance to the value of the home. 

The calculation is simple: 

  • Divide the loan amount by the home’s purchase price or appraised value
  • After this, multiply by 100

If for example, the loan amount is two hundred thousand dollars, the LTV of a home loan will be eighty-three percent. The down payment percentage is the difference between this percentage and the loan amount.

 

Shared Appreciation Mortgage

A Shared Appreciation Mortgage (SAM) is a type of mortgage that allows you to borrow a small portion of your home’s value at a low-interest rate. And back in return, the borrowing will be for a portion of the appreciation that the house will experience upon its selling. You will normally have a short time period to repay the loan principal, which can be lower than your current mortgage. However, shared appreciation mortgages are not the same as shared equity agreements and contracts, so you should not confuse the two.

3 Main Types of Home Loans or Mortgages

Conventional Mortgages

This type of loan is not backed by the federal government.

Conforming Home Loans

These types of loans are bound by maximum loan limits set by the federal government. These limits vary by geographical area. The other category is the nonconforming mortgages.

Government-Insured FHA Loans

Low to moderate-income purchasers who are buying a house for the first time usually access such loans. These loans are insured by the Federal Housing Administration (FHA).

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