Getting a home loan is the ultimate dream for most of us. A house is a huge investment and the purchase of a home involves many complex legal formalities. It is therefore not advised to jump into buying a house on the very first go. There are various lending institutions that provide various types of home loans. However, there are certain criteria that are to be fulfilled by the borrower before he gets approval for a home loan. Home loan is an unsecured form of borrowing, which means the lender has no claim on your property.
There are various types of loans available from various lenders. These loans are secured and unsecured forms. Secured form of loan requires you to pledge your property as collateral with the lender and can be approved without any hassle. With this type of loan, the lender may ask for some extra documentations. On the contrary, in case of an unsecured form of loan, your property does not get pledged with the lender and is approved without any extra formalities. In order to get approved for this type of loan, it is necessary that you make a good repayment record earlier.
If you have a good credit score, you can choose from three kinds of home loan policies. The two traditional types are fixed-rate mortgage and variable rate mortgage. In fixed-rate mortgage, you are offered a specific interest rate over a definite tenure (decade). In case of a variable rate mortgage, you pay a slightly higher amount (fixed-rate mortgage) over a definite tenure with or without extra payments.
A good plan of action to purchase a home is opting for a fixed-rate mortgage plan. In this plan, the monthly debt you need to repay remains same throughout the entire tenure of the loan. This allows you to save on interest cost, as the interest is not charged on the loan amount you borrow. However, when you sell your home, you may have to forfeit the amount of interest on your home ownership which you had paid during the tenure of the loan.
It is also advisable to purchase a variable-rate mortgage loan plan. In this plan, your interest rate may change according to the base rate in the United States. However, you do not have to fork out money on extra payments at the end of every term. This means that there are no extra payments to be made, every month. However, if you are unable to pay off the loan early, it could lead to negative consequences on your credit reports.
Before you apply for a home loan, it is advisable that you check out your credit report first and then look for an ideal plan. Check the debt-to-income ratio (DTR) of your current property with the FICO score of your credit report. This is one of the most crucial factors in determining whether you can get approved for a home loan or not. If you have a high debt-to-income ratio, it indicates that you are over-burdened in your monthly debts. Hence, lenders would like to see a change in your income ratio.
You can get prequalified at any mortgage banker but you have to meet certain qualification criteria. For example, the person applying for the preapproved loan needs to be at least 18 years old and hold a job. Secondly, the applicant needs to have a stable job and be earning a decent salary. The credit report of the applicant must be clean and free from errors.
Once the lender has agreed to prequalify you, then you are ready to sign a contract and close the deal. Your contract will show the terms and conditions between you and the lender. This is where the lock-in period comes in. The lock-in period is the period from the time you get prequalified until the time when you actually close the deal with the mortgage process. The lock-in period will let the lender know that you are serious about buying a property and you will not be easily persuading them to give you a bad loan if you need another loan. Thus, you need to be very careful during this period so as to avoid problems in the future.