Whether you’re a homeowner or a new house buyer, it pays to consider a home loan. Also known as a mortgage, a home loan can be beneficial both for financing your new house and for renovating your primary residence. However, the details of individual homeowner loans can seem intimidating. Here, we will look at a guide for exactly what your home loan can be used for, and ways to apply those funds once you’re approved.
Loans for New Homeowners
Most people associate home loans and mortgages with a first home. However, many homeowners also apply for a mortgage for a new home or needed renovations. For a first-time home purchase, different lenders assist buyers through incentives. Deals on the loan type, mortgage insurance, lower monthly payments, or a starter’s mortgage rate can all be considered for first-time home buyers. In addition, with good credit, a borrower may garner some of the lowest home loan interest rates available. Mortgage lenders may assist new home buyers, although there are prerequisites for the application.
For a mortgage, lenders will check applicants’ current credit cards, credit score, and income ratio. This can determine the loan amount, down payment, interest rate, and monthly mortgage payments. On the flip side, many mortgage loans have options for co-signers (such as spouse or partner), as well as lower down payments if your monthly income ratio warrants higher interest rates in the future. Here, a mortgage calculator can estimate whether higher rates or lower rates may be in order, along with annual percentage rates. Put simply, once the application is complete, your mortgage lender will present the average rate and available options.
After home loan approval, the down payment is determined and funds are granted for closing costs. Regardless of the lender, the life of the loan may span many years. However, even then (and depending upon the type of loan), options are available for your outstanding mortgage payments in the future. If you ever relocate or wish to pay off the loan early, the lender can assist with possible flexibility of mortgage loan terms and interest rates (such as an adjustable-rate mortgage).
Options for Current Homeowners
For homeowners who know the home loan process, there could be many reasons for a new mortgage. Likewise, even if you’ve never needed a mortgage before, a specific type of mortgage may help now. For example, if you want a new home and need additional financing, or are considering renovations to increase curb appeal and, ultimately, the home’s value.
If you’re looking to raise the property value of your primary residence as an investment, a mortgage loan can help you from dipping into your savings account. For example, consider the benefits of vinyl siding. Your home loan could cover the appraisal of durable siding material or the installation. Rather than wood siding (which can warp, succumb to moisture cracks in bad weather, and attract mold, termites, or other pests), a low-maintenance vinyl siding alternative is one of many new siding upgrades to consider. With excellent credit, a home loan with a low mortgage rate can cover the installation process and upfront cost right away, along with additional funds for other projects.
Aside from a new type of siding for the exterior of your home, a homeowner’s shorter-term loan can cover other items on your wish list. New panels, patio work, insulation, or renovations within the interior are each a good idea. New wall studs, for example, to solidify aged infrastructure, or (if market conditions allow), numerous tweaks for energy efficiency. Such investments as a new HVAC or furnace to remedy heat loss can attract potential buyers. Likewise, in the long run, any new air system lowers your energy bill’s monthly payments.
Refinancing Your Home Loan
There are numerous refinance options (often better than a conventional mortgage), which can streamline the best deal on the lowest rates, For example, you could extend your loan term in order to lower the monthly payment. However, know up front that, in the long run, you’ll pay more interest. To get a lower interest rate, a homeowner could also tap into their home equity, borrowing more from their lender or loan officer than the outstanding total cost of the loan. Finally, unlike with a conventional loan, you could negotiate to shorten the life of the loan for a better rate. While the good news is this pays off the home loan faster, it can also cause higher monthly payments. It’s best to consult a loan officer in making an informed decision on the pros and cons of the different loan terms. By doing this proper due diligence, you’ll find the best rate.
