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Looking to buy a home or want to start a business in the US?
In our life it is not sure that we always have funds or budget to plan anything like starting your own business or buying a house, you can require funds anytime, that’s where Mortgage lenders come in, if you’re an owner of a property in the US then you can simply mortgage your home to the mortgage lender and get the money required at a very low-interest rate.
The greatest advantage of mortgage lending is that you don’t have to give up the ownership of the property. In this article, we’ll cover everything about mortgage loans.
What a Mortgage loan is?
A mortgage loan is taken against a residential or commercial property that you own like your house, shop, or a non-agricultural piece of land. Mortgage loans are offered by banks and non-banking finance firms called mortgage companies.
The bank or company provides you with the loan amount and charges interest on it which are of two types.
You can choose which interest rate you want to go for between
Fixed interest rate which is allowed for short tenures and remains the same for the entire loan tenure
and a Floating interest rate which you’re allowed to take for long tenures and adjusted according to the prevailing market rates.
The loan can be paid back in monthly installments-
Every monthly installment can be of four parts: principal, interest, taxes, and insurance.
Principal: Principal is the amount of money that you have left to pay for the loan. For example- if you borrow $100,000 to buy a shop and you pay off $10,000, then your principal amount is $90,000.
A fixed part of the installment will automatically go towards paying down your principal and you will have the option to put extra money toward your loan’s principal by making extra payments , this way you can pay your loan earlier and lessen your interest amount.
Interest: You’ll pay interest based on your interest rate and loan principal. The money you pay as interest goes directly to your mortgage provider. With time you’ll pay less interest as your principal decreases.
Taxes And Insurance:
If your loan has an escrow account, your monthly mortgage payment will also include payments for property taxes and homeowners insurance. Your lender will keep the money for those bills in your escrow account and will pay your taxes or insurance premiums if they are due.
Before you take out a ton of money you should be prepared for utilizing it and You should be out of debt, equipped with an emergency fund of at least three to six months for expenses, and have at least a 10% down payment which will keep you from paying private mortgage insurance on top of your monthly mortgage payment.
Your property stays in possession of the lender until the loan is paid back fully.
As such, the lender has a legal claim over the property for the tenure of the loan only, and if the borrower fails in paying off the loan, the lender has the right to seize it and auction it off to recover their funds.
Let’s have a look at the key benefits of Mortgage loans in terms of other loan types
- You’ll remain the legal owner of your property while you use the funds to fund your needs.
- Mortgage loans are easily approved as they are given on against of your property.
- The interest is much lower than a personal loan.
- The loan can be paid back in easy monthly installments.
- There is no restriction by the lender on how you use the money.
Your credit scores are an important factor in getting approved for a mortgage loan and the rates you’re offered.
However, mortgage lenders also go beyond your credit scores when evaluating your application.
So the question here arises which credit score do mortgage lenders use
The commonly used credit Scores for mortgage lending in the US are:
- FICO Score 2
- FICO Score 5, or Equifax Beacon 5
- Trans Union Risk Score 04
So make sure to clear your debts and comply with the credit score requirements before applying for a new loan.
Some of the well known mortgage lenders in the US are Quicken Loans, United Wholesale Mortgage, Freedom Mortgage, and Wells Fargo.
Let’s have a look at this graph, you can see that the choice of people in choosing a mortgage lender is majorly based on the interest rate and fees including closing cost. So be sure to check different mortgage lender’s closing costs and Interest rate or fees.