Understanding how home loans work can be complex, so we’ve gathered some information to help you better understand some home loan basics.
Here, we’ll cover all the basics, including home loan definitions and their type, different home loan companies, and the mortgage eligibility criteria!
Home loan definition
A home loan, also referred to as a mortgage loan, allows people to purchase a home without having all the money upfront—which most people do not have. There are many different types of home loans, and each can have varying terms and interest rates.
Different types of home loans
There are two most common types of home loans: fixed-rate mortgages and adjustable-rate mortgages.
Fixed-rate mortgage: With fixed-rate mortgages, your interest rate stays the same until the loan is paid off. This type of mortgage is popular because it typically has less complicated terms.
If you’re on a tight budget, the fixed rate is the more suitable option for you. Since the payment amount is not changing, making it easier to plan.
Adjustable-rate mortgage: Adjustable-rate mortgages are loans whose interest rate can change at set intervals. For example, it could adjust yearly or even monthly intervals, depending on your loan type.
This type of home loan has a low introductory rate, which means more reasonable monthly mortgage payments. It is also easier to qualify if your credit situation isn’t ideal.
Types of Home loan Companies
When seeking financing for a home, borrowers can choose between mortgage brokers, direct lenders, and secondary market lenders.
Mortgage Brokers: A broker connects you to a mortgage lender or bank. Using a mortgage broker can save you a lot of time, and they assist you in finding the best mortgage that suits your needs and financial capacity.
Direct Lenders: Direct lenders are banks or financing companies that provide loans with no middle man or additional costs. One of the most significant benefits of direct lenders is that they process the whole mortgage application for you.
Credit unions: Credit unions are financial institutions that only offer loans exclusively to their members. They may have lower costs and interest rates, but they may take longer to close like banks.
Am I eligible for a home loan?
When you apply for a home loan, lenders will look at many factors to decide whether you are qualified. The general criteria include:
- Monthly income
- Credit history
- Borrower status
- The age of the borrower
Each mortgage lender has its requirements when evaluating mortgage applications. Most lenders have strict criteria, but some are more flexible, so do prior research on your chosen home loan companies’ requirements.
Getting a home loan can be overwhelming, but we believe getting one shouldn’t be! We’ll help you at each step of your home loan application and answer any questions you might have!
Now that you have a basic knowledge of home loans get started with our experienced mortgage advisors at Belay Mortgage Group!