A home loan or real estate loan simply refers to a lump sum of cash borrowed by a bank or other financial institution to buy a real estate property. Home loans often include an adjustable or fixed rate of interest and varying payment schedules. Typically people take out a home equity loan for the purchase of a new home, extension, building repair and/or renovations to an old home, or for building a new home. The lender is usually a private financial institution that has created a 'home-secured' account similar to a savings account with a special secured credit line. In return, the borrower is required to use the line as collateral, and may receive an interest rate that is fixed for the life of the loan.
As with any other kind of loan, there are many factors to consider before taking out home loans. First, it is necessary to shop around to find the best rates from a reputable lender. Second, there are laws in place that protect borrowers if they happen to default on their house loans. And third, there are many tax advantages to purchasing a home and making home improvements that will improve the value of the property.
Home loans can be broken down into two major categories: FHA loans, which are insured by the Federal Housing Administration; and VA, which are insured by the United States Department of Veterans Affairs. Most borrowers seeking home loans obtain loans from the FHA, as FHA loans carry a lower interest rate than conventional loans, and require only a moderate credit history. For borrowers with poor credit, FHA loans and standard home loans are often not feasible. FHA loans are also good for first time home buyers who do not qualify for conventional financing due to lack of employment or credit history. Check out this product if you are looking for the best home loans product.
VA home loans are available to veterans through the Federal Housing Administration's Choice Vouchers program. To get a VA home loan, veterans need to meet a minimal income and credit criterion, and must be active members of the Selected Reserve. In order to apply, borrowers need to fill out an application and submit it to the appropriate VA regional office. One advantage of VA home loans is that the interest rates are set by the government and do not depend on the financial status or ability of the borrower, see more here.
Many people use adjustable-rate mortgages or ARM loans for home purchases, regardless of the type of mortgage loan. Adjustable rate mortgages come in two types: initially fixed rates; and initially variable interest rates. In the former type, initially fixed rates are offered; however, after the initial year, the interest rate can change. In the latter type, initially variable rates are offered; however, after the first year, the rate can change.
Fixed-rate mortgages, also known as ARM loans, are available to certain groups of people, including first time home buyers and senior citizens. With fixed-rate mortgages, a borrower pays only one-time fixed interest rates. In addition, in case the loan goes default, the lender will not increase the interest rates. However, in case the loan goes into default monthly, the lender can raise the interest rates.
To understand more about this subject, please read a related post here: https://en.wikipedia.org/wiki/Home_equity_loan.
