Home Mortgage Loans – Navigating the Maze

Home loans can be very confusing considering how many different types there are. Unless you’re a mortgage expert, it can be daunting to wade through the maze of home finance to decide which product is right for you.

In order to choose a loan, it is important to clarify your goals. Do you want to buy a house? If so, do you plan to live in it yourself, visit it occasionally as a second home, or rent it out as an investment? Perhaps you have already bought the property and are looking for refinancing. That means getting a whole new loan. This is comparable to the first home loan. Or maybe you want to keep the original loan but add a second mortgage in the form of a home equity loan or line of credit.

Let’s start with buying a home. The cheapest and most accessible loans are those for owner occupiers. That means your plan is to live in the house yourself. Lenders trust the performance of these mortgage loans more than anyone else because homeowners are expected to always pay off their personal home loan before investment properties or the homes they only visit once or twice a year. Theoretically, if someone got into financial trouble, the last thing they would default on would be the house they live in. Therefore, these loans have the best terms and are the easiest to get. Many loan products are available that don’t even require a down payment, and some banks work with government agencies to assist first-time homebuyers with down payments and a reasonable payment schedule for those who qualify.

The next best type of loan program is for second homes. Second homes are also referred to as holiday homes. These mortgage loans have slightly less attractive interest rates than owner-occupier loans, but are still better than investment home loans.

Mortgage loans for real estate bought for investment purposes are the most difficult to obtain and tend to have the least attractive terms. They almost always require a down payment, and the required appraisals tend to cost more. This is because the appraiser not only needs to provide an appraisal of the value of the property, but also an assessment of how the unit will perform as a rental. Overall, fewer lenders are willing to finance investment housing, and those that do may require additional qualifications from the borrower, such as: B. At least two years of experience as a landlord. These loans are considered riskier because an investor is more likely to “walk away” (foreclosure) on the home if it is not earning rental income, or if it is disinterested or unable to make further payments. Sometimes the expensive *mortgage interest* that comes with these loans can be lowered by depositing a larger amount of money, reducing the lender’s risk.

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If you intend to pull cash out of the home, it can be done with a payout refinance if there is enough equity in the home to meet the lender’s LTV (loan-to-value) requirements. Not all homeowners are eligible for a payout, depending on what is owed on the home and its current value. This type of refinance increases the loan amount by the amount drawn plus closing costs and can result in higher payments.

Adding a second mortgage can be an alternative to a payout refinance. This also requires that there be enough equity in the home to add another lien without jeopardizing the lender’s LTV requirements. A home equity loan makes the money available all at once and generally has a fixed interest rate. A home equity line of credit (HELOC) can be drawn on when needed, with payments only being due on the amount drawn. HELOCS have matching rates. Because it is a 2nd mortgage, both types have higher interest rates than a 1st mortgage. This is due to the increased risk for the lender. In the event of foreclosure, the first must be paid before the second, so the lender must price its products accordingly.

Before obtaining any type of mortgage financing, seek advice from a home loan expert and make sure all of your questions are answered. There are many loan products available, so choose the one that best suits your needs.