by by Apu Hypallathek
For many, the American dream begins and ends with the purchase of their very first home. But, unless your name is "Trump" or "Gates," you will most likely not be able to put down all the money required to purchase your first home. So, you will need to get a home loan - or mortgage - in order to move into your dream home. But getting a home mortgage can be a daunting task.
Basically, a home mortgage is an agreement you sign with a bank or lending intitution that says you will pay them a certain amount of interest on top of the purchase price over a certain period of time if they lend you the money. Your mortgage is secured against the property you will be purchasing so if you default, the bank will become the owner of the property.
Most likely, you are familiar with interest rates from your credit cards or perhaps a personal loan or car loan. The good news is that a home mortgage usually carries a much lower interest rate than credit cards or personal loans.
This is because a home mortgage is for a much larger sum, and the loan is paid off over a longer period of time, which means the banks get a steady stream of income. Payments are generally monthly, and the repayment timeframe will be from 10 to 30 years.
There are two major types of home loans in America now, with a third type becoming more popular in recent years. The first type of loan is the fixed home loan which allows you to borrow the money at a specified or fixed rate of interest for a specific numbers of years. Many borrowers sign up for this loan because in doing so they avoid the risk of having to incur extra expenses if home loan interest rates should fluctuate.
The second type of loan is the variable home loan which has a variable or changing rate of interest. Should the Reserve Bank determine that interest rates will move up or down in a particular quarter, then your lender has the freedom to also do so accordingly. If the rates are heading downwards it is ideal for borrowers. But should they begin to trend upwards this can spell danger for many people who live on a tight budget and already struggle to make their monthly repayments.
The third loan, which is becoming more popular in America is the bad credit type loan otherwise known as the low doc
loan. Bad credit or low doc home loans may sometimes be
slightly more expensive in terms of setup or maintenance fee and usually attract a high rate of interest over the course of the loan. This offsets the lenders increased risk at the borrower having a poor or indeed no credit history and possibly defaulting on the payments after getting the mortgage. These loans are particularly popular with people who have a bad credit history, people who have low incomes including those who receive social welfare payments and people who are self employed.
No matter what type of credit you have, there is probably a mortgage lender out there who will help you make your dream of home ownership a reality. You just need some patience and a lot of perserverance to get into the home of your dreams!
Apu Hypallathek is the owner and operator of Use Mortgage, Inc., a leading Internet directory for mortgage information. For more mortgage information and resources, please stop by.
