Mortgaging your house might sound a bit scary and frustrating, but it might be the answer to your debt problems. Mortgages are probably the best secured loans, as real estate values are generally increasing and lenders still consider it as strong collateral. Real estate is usually one of the most expensive items a family will purchase and because it’s somebody’s home, making the payment is a high priority. As houses are immovable, serving for decades as a place to live, the maturity of the mortgage, which is usually a long time (20 to 30 years), is not a problem. Therefore, if you own your home outright or have equity in your home, and need a considerable amount of money, you might consider a mortgage loan.
When you need to get a mortgage, many aspects of your personal and financial situation are evaluated to determine the exact terms of the loan. The final agreement is preceded by several phases. Most lenders offer what is called a “pre-approval”, which is when they take a quick look at your credit and income and give you an estimate of how much money you can borrow. Once you know for sure that you want to borrow this amount, you will complete the actual mortgage application. The lender will then need to approve your application.
According to your credit report or the lender’s guidelines, you might or might not be eligible for the loan. This is why many people opt for credit repair before applying for a mortgage. If you have only a few inaccuracies on your credit report, it could strongly influence the decision of the creditor on your trustworthiness. The better your credit score, the lower your interest rate will be. In fact, the difference could be drastic. Someone with a good score could qualify for a 4% mortgage, where a poor credit score may only get a 8% or 9% approval. This could double your monthly payment!
Once you have the best possible credit score and your application has been accepted, the home appraisal or valuation is the next step. Before the appraiser comes, you could visit a home valuation site and look up a few recently sold houses in order to compare them with yours and even get a free home estimate. This will give you a better idea of what to expect and help you be prepared to contest anything that might seem suspect. You should know that proximity to a school, a shopping center or any kind of amenity increases the value of your home.
A licensed appraiser will perform the final appraisal, which should take into account the overall condition of the property, age, the area and the selling price of a similar properties in the neighborhood. After the appraisal, you will also receive a copy of the report, which should contain their impression of the property as well as at least three comparable Properties that were used to determine the final value. Most appraisals cost around $400 and only take a few days to complete. You may spend more or less, depending on the value of your home. This step is required for almost any mortgage and the home owner is generally responsible for the cost.
After the lender has reviewed the appraisal, your income, and your credit, they will offer you a loan amount for less than the appraised value. Loan amounts are generally less than 90% of the appraised value and the payment should be less than 30% of your monthly income. Once your monthly payment is calculated on the principal & interest (actual amount of the loan + interest), the lender may also include taxes, home insurance, association fees (if any), and PMI (private mortgage insurance). Closing costs and broker fees may also be calculated in the monthly payment.
After all these fees are added in, it’s important to make sure the final payment is affordable before signing the final agreement. Missing a payment will result in foreclosure and losing your home and equity. By managing your money intelligently and keeping your payments on time, you can enjoy a long and happy life in your home.
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