It is a dream of nearly every person to one day buy and own a comfortable and luxury home. But houses are one of the most expensive things to buy and not within easy reach of people. Houses require a significant amount of financial resources that only the affluent people can afford and purchase a house of their choice. The less wealthy people hoping to buy and own a house have to rely on mortgage loans offered by banks, private lending companies, and government approved lenders.
Mortgages are financial tools that allow homebuyers to become homeowners. Mortgages are loans which people obtain to support the purchase of a house. The mortgage amount consists of a principal amount and an interest amount which the borrower (homebuyer) agrees to pay to the lender within the agreed period in the form of monthly schedule mortgage repayments. The mortgage amount is not a small amount, and the lenders mostly have strict criteria and rules before they provide the mortgage amount to potential homebuyers.
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The banks and private lending mortgage companies have stringent requirements and rules as they do not want to lose their investment and money. The government lenders, on the other hand, have lenient criteria but also ensure that the homebuyer has the financial ability and capability to repay the loan on time or not. The few factors which the aspiring home buyers have to consider before going to obtain the home loans are
- Having a high monthly income
- A good credit score
- A low debt to income ratio
The lenders want to reduce their risk and also want the homebuyer to manage the household expenses and the monthly mortgage payments easily. The credit scores are the most essential and deciding factor when it comes to home loans. The credit scores are classified by FICO (Fair Isaac Corporation) and categorized as
- 750 to 800= excellent credit score
- 700 to 749= good credit score
- 650 to 699= fair credit score
- 550 to 649=poor credit score
- 550 or below=bad credit score
A good credit score means a person has paid his debt on time and can easily pay the mortgage loan that he obtains for the house. A poor or bad score shows a person has missed debt payments for several months, and it would be a risk giving him additional loan as he would most likely default on the new loan amount.
The different and popular mortgage loans that mortgage companies near me offer are
- The conventional and fixed interest rate: The conventional loans are offered by banks and private lending companies. The loans are available in 10, 15, 20 and 30-year terms
- Adjustable rate mortgage (ARM): The interest rate changes in the life of the mortgage and the changes are mainly due to changes in economic conditions and financial situation of the borrower (homebuyer)
- Federal Housing Administration (FHA) loans are most ideal when it comes to obtaining a loa, even with a low credit score. The homebuyers have to just pay 3.5% or 10% as down payment, which is considerably less than 20% down payment of conventional mortgage loans.
- Veterans Affair (VA) loans are home loans offered to war veterans, their families, and currently serving military members. The VA loans offer numerous financial advantages as the veterans do not have any down payment or mortgage insurance. The closing costs and interest rates are also quite low.
- United States Department of Agriculture (USDA) loans are also government-backed loans that allow the homebuyer to purchase a house in a rural area with easy loan terms and low-interest rates. These loans do not require any down payment, and mortgage payments are fixed.
- Jumbo loans are offered to people who want to buy extravagant and lavish homes or real estate properties. But the qualification requirements of jumbo loans is tough as compared to other loans as the mortgage amount is bigger than the county loan limit.