Mortgage | Types and Requirements to Get a Mortgage
If your budget is not sufficient to buy the property you want, you can apply for a mortgage loan and borrow the amount you need by depositing at least 5% of the property value.
That means some help to buy the house you want, you may consider applying for a mortgage to receive the lacking amount you need.
Mortgage means getting financial help to purchase the property you choose. The lender checks your credit history, your income and your savings to see if you are creditworthy. Generally, you need to put down a deposit to borrow the lacking amount from a lender which is usually 80% of the price.
Repayment terms are based on your deal but you usually have to repay the amount you have borrowed within 25 years with monthly interest and fees. Even if you live in the property you have bought, the lender will be the owner until you complete your mortgage repayments.
If you fail to repay your loan, the lender have a right to take the possession of your property.In other words, you pledge your house as security until your repayments are finished.
In other words; Mortgage is depositing some money to a lender and getting the lacking amount from that lender with additional fees and monthly interest to purchase a property. You should shop around to find the most affordable interest rate and fees before you decide. Generally have to repay the loan within 25-30 years. Using your property or real estate as collateral which means if you unable to complete your repayments, the lender can take the possession of you property.
If you decide to move or sell your house, you can transfer your current mortgage to your new house.
After checking your credit history, your income and your savings to assess risk. Lender provides you a home loan to cover the lacking amount you need to purchase the house you want. Most lenders require you to put down a deposit first. Then you need to repay the amount you have borrowed within 25-30 years with monthly interest and additional fees.
The Requirements For A Mortgage
- You must have a good credit score. (Ideally 680 or higher)
VA Loans, Conventional Loans and USDA Loans require 620 min. credit score
FHA Loans require 580 min. credit score
203k and Conventional Loans require 640 min. credit score
- You must have a sufficient and stable income.
- Need to make a down payment first.
- Also, you need to send some documents to get a mortgage such as:
W2’S from the past 2 years.
Pay-stubs of last 3 months
Tax returns of last 2 years
List of your debts and assets
P60 from your employer
Additional income (second job, freelancing, benefits, commission or bonuses)
Mortgage Down Payment
To get the lacking amount you need, should make a down payment first. It reduces the amount of loan you need to borrow and lowers you monthly payments.There are different types of loans which may require a large down payment, a low down payment or no down payment. There are some loan types and their down payments mentioned below:
- VA Loans : No down payment
- USDA Loans : No down payment
- FHA Loans : 3.5% down payment for 580 credit score
- 203k Loans : 3.5% down payment
- Conventional 97 : 3% down payment
- Convenitonal Loans : 5%-20% down payment
Interest Rates Of Mortgages
Mortgages are the biggest type of loans issued by the banks, credit unions, some pension funds and several government agencies. You need to shop wisely to find the most suitable interest rate and terms for your budget. Your monthly payments will be composed of principal, interest, taxes and insurance.
Interest rates of mortgages can be either fixed or variable. Fixed-rate mortgages allow you to repay the same interest rate and mortgage payment each month over the life of the loan while interest rates of variable-rate mortgages can be changed due to changing market conditions.
Mortgages mainly have two types of interest rates: fixed or variable.
- Fixed-rate Mortgage: You have to repay the same amount of monthly payment with the same interest rate over the life of the loan. That type of mortgages include 30-Year, 20-Year and 15-Year Mortgages. Shorter loan terms usually require you to pay less interest than longer loan terms.
- Adjustable-rate Mortgage: The interest you have to pay can be changed due to changing market conditions and other factors.
Several types of home loans you may want to consider mentioned below:
Types of Mortgages
- Balloon Mortgage: After 5th,7th or 10th years of your low monthly repayments, you need to repay the rest of the loan. Immediately which can be risky for most customers.
- Interest-Only Mortgage: After paying only interest for a limited time, you need to start paying more principal to recover the lost time.
- Reverse Mortgage: If you are 62 years old or older, you can receive a loan aganist the equity of your house in a lump sum. Since the lender will have a right to have a lien on the house when you die, you do not need to make repayments unless you move your house.
- Combination Mortgage: If your budget is not sufficient to make a 20% down payment for a home loan, you can take two loans at a time to receive both 20% for down payment and %80 for the value of your house.
- Government-Backed Mortgage: Since that loan will be backed by the government entities t encourage home-ownership, the lender’s loss will be covered by the government if you fail to repay.
- Second Mortgage: If you already are a home-owner and have a need of cash for you expenses, you can apply for a second mortgage which will be secured by the equity in your home.
Some Top Mortgage Options
- Balloon Mortgage : In this type of mortgage, your repayments usually take 5 to 7 years. Which leads you to make low monthly payments. However, you have to repay the rest of the loan at the end of those 5-7 years. That can be risky.
- Reverse Mortgage: If you are 62 years old or older and need cash, you have a chance to get paid. (monthly or a line of credit) Against the equity of your house. However, you need to be prepared to face high closing costs, taxes and mortgage insurance.