If you don’t have enough money to buy a new house, then you can take out a mortgage loan. Before you opt for a mortgage loan, you must decide the type of loan suitable for you and know the documents that you have to produce to make yourself eligible to take out the loan.
Types of mortgage loans
(1) Fixed-interest mortgage loan
If you’re unable to take risk, you can opt for this type of mortgage loan. Here, your interest rate will remain same throughout the loan term. This will help you manage your finances accordingly as you’ll have to pay a fixed amount every month in spite of certain changes of interest rates in the market.
(2) Adjustable-rate mortgage loan
If you’re able to take risk, then you can take out an adjustable-rate mortgage loan. Here the interest rate will vary according to the changes in the market rates. The interest rates for the first few years, according to the term, are lower than that of a fixed rate mortgage loan. If you’re obtaining such a home loan, then you should be financially prepared to handle your increased monthly payment (if your market rate increases) after your low fixed rate period is over.
However, if you want to take out a mortgage loan, then you have to present yourself as a credit worthy debtor and should have the adequate documents and records of your financial status.
Records to be scrutinized
(1) Employment history
If you’re a permanent employee or have been working in a company for more than 2 years, then it will be easier for you to take out a loan. It is from your employment history they will mark you as a stable and consistent employee and based on this ground, they will judge your capability to repay the mortgage loan.
(2) Credit report
It won’t be a problem to opt for a mortgage loan if you have some debt on your credit card and you’re able to make on-time payments on your credit card bills. However, it is always better if you clear all your debts at least six months before applying you apply for a loan. Your credit score must be at least 700 to take out a conventional loan and 620 to obtain an FHA loan.
(3) Outstanding liabilities
According to lender’s criteria your monthly payment for liability should not exceed 36% of your monthly income. Thus, to take out a mortgage loan, you should try to reduce your monthly payments on liabilities.
(4) Cash and asset reserves
If you are able to produce a proof of the amount of cash and liquid assets that you have to your lender, then it will be easier for you to take out a mortgage loan. If you’re an employee or self employed, you have to present your income tax return, bank and investment account statements as a proof of your assets.
Choosing the right mortgage loan is a big decision. With proper research and comparison, you will be able to find out a home loan that will make your dreams of a new home come true, and will give your family peace of mind and financial security.