A house is one of the biggest purchases an individual can make in a lifetime, and before entering a contract, one needs to understand the risks when the property is now secured as collateral for a loan. As protection to the lender, he can foreclose the property when the borrower could no longer meet payments. A secured home loan is collateral for a loan that will make a lender repossess the property once the borrower/homeowner defaults on the loan.
Choose Your Lender Well
The first person a borrower meets when on the market for a house that will work for them would be the realtor. Realtors have various contacts with whom he/she has done business in the past and would, therefore, be forthcoming in recommending a lender to use. On the other hand, if the borrower already has a bank or lending company in mind, the realtor’s recommendation can be deferred. What must be remembered is to choose your lender well. Bear in mind that the bank or lending company owns your home until you have finished paying for it.
Securing a Loan
Application for a secured home loan needs all of your financial and personal information. This would include rental or current mortgage history, bank statements, loans, proof of income, credit card bills, and most importantly, your ability to make good on your house loan payments. The final word on the loan application may take a week or a month, depending on the completeness of documentation and the loan process time of the lender.
Find Out the Interest Rate
The better credit standing one has, the lower the interest rates. This is typically practiced by lenders who do not see a high risk in granting you a home loan. Other factors that will determine approval of a secured home loan would be the amount of a deposit the borrower could put down and the capability of the borrower to make the monthly payments.
There are also fixed or variable mortgage rates, which start at a lower rate and reach a predetermined ceiling rate after a period of five years. This should be noted as this will greatly affect the amount of monthly payments, and depending on the size of the loan, can spell the difference between struggling to meet the payments and being able to afford it.
The Home as Collateral
The home, once bought through a home loan, will now be its collateral. Not meeting the payments will mean losing your home. As soon as this happens, your credit standing will not only be severely affected, you will also end up losing your home. The thing that must be considered foremost when applying for a secured home loan is your capability to meet the monthly payments along with household expenses and other debts.
A higher bracket income may qualify you for a bigger loan, but the thing that must be thought of the most would be your capability to pay it off. If you feel that a lower amount of secured home loan than what the lender is offering makes you feel comfortable with the payments, then by all means, go for it!