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Helpful Mortgage Loan Tips

Mortgage loans are the most complicated loans for the greatest amount of money that you will ever deal with. You must go to many different lenders to compare conditions to find the best deal to fit your needs. Read ON!

What are they used for?

Mortgage loans are exactly what they sound like; loans that you take out to help you pay for your mortgage. Mortgage loans are taken out to finance a property from an institution like a bank or credit union, which you would essentially be “borrowing” the home from until the mortgage is paid off.

Because homes are such expensive assets (often at least $100,000, not including realtor commission) it is common for a person or couple to obtain a mortgage loan in order to pay for it, as most people do not have that much liquid funding readily available.

Loan conditions?

Getting a mortgage is a little tougher than getting most other kinds of loans, because homes are such valuable high-cost assets. So what will be required from you in order to get a mortgage? There are quite a few hoops that you will need to jump through. First, you will need to put down a down payment of at least 10–15% of the cost of the property. You can put down more, and a down payment of 20% or more will usually let you avoid private mortgage insurance, which will cost you an extra 0.5–1.5% per year.

Mortgage Loan Next, you’ll need to have good credit. While certain types of lenders will not care TOO much if you have less than perfect, banks and credit unions that provide mortgages require you to have a minimum credit score of 620 (some have slightly higher standards for minimums of about 670 or so).

However, the lower your credit score, the higher your interest rate may be, says Business Loan Singapore. So, it benefits you to have better credit. If your credit score is about 720 you will tend to get the best rates. Finally, your ratio of debt to income will be scrutinized. Once again, banks and credit unions are businesses and they want to make sure they will be able to get their money back from you.

Where can I get it?

You can apply for mortgage loans through your bank or credit union. Most banks and credit unions offer mortgage loans because they are such valuable assets, and like we’ve said a few times; banks are in the business of making money!
However, you should check with your bank to be sure that they can give you a mortgage beforehand.

Example 1

A couple finds a home for $165,000 and decides to put the minimum 10% down payment on it. The interest on the loan is 7%, and the loan term is the standard 30

years. Let’s figure out the down payment on their new home first: $165,000 x .10 = $16,500. So, 10% of $165,000 is $16,500?—?their down payment amount. Now we have to remove the down payment from the cost of the home: $165,000?—?$16,500 = $148,500. With this loan we need to consider principal, interest, property taxes, and other costs. So, what does the monthly expense break down to? .07 x $148,500 = $10,395 interest per year. + 148,500/30 = 4,950$ return of the fund per year. When you add your interest, plus your principals, property taxes, plus your normal monthly payments, how much do you REALLY end up paying? Over 30 years, the cost of the home more than doubles: $395,189. Not uncommon in the least, but certainly worth understanding!

Example 2

A couple finds a beautiful home for $300,000 in a nice neighborhood and puts $60,000 down payment on it.

The interest rate is 3.4%, and yearly property taxes equal approximately $4,500 per year and roughly $481 on homeowners insurance per year. Let’s first figure out how great of a percentage this couple put down: 60,000 / 300,000 = .2, so they put down a 20% down payment, which is excellent.

Next, we know the yearly interest rate, but how does it break down by month? We need to divide it by 12: .034 / 12 = .00283, or approximate .283%. Over 30 years we have 360 months, and must figure out the payment for each of those 360 months. 300,000 (their original cost)?—?60,000 (their 20% down payment) = 240,000 left that the couple needs to pay over 30 years. 240,000 x (.00283 / (1-((1 + .00283) x (360 months)) = $1,064 per month. When you account for approximate property taxes, that number goes to $1,361.85 per month for 360 months.

Over 30 years, that equals $490,266 total. 
Mortgage loans are the most complicated loans for the greatest amount of money that you will ever deal with. You must go to many different lenders to compare conditions to find the best deal to fit your needs.

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Any facts, figures or references stated here are made by the author & don't reflect the endorsement of iU at all times unless otherwise drafted by official staff at iU. This article was first published here on 5th August 2018.

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