We’ve all heard of the word home mortgage loan at least once in our life, either when our parents complained about the monthly interest, they had to pay for their mortgage or when we went to the bank. But, if you are a Gen Z or even a younger Millenial, then you most likely don’t know what a home loan is or if you even qualify for one.
Don’t worry because I was in your shoes once and was a mortgage novice too. Continue reading this article and learn more about home mortgage loans because our schooling system sure doesn’t teach us things that would help us further down in life. So, without further ado, let’s dive into this blog and learn some of the things you ought to know about home loans.
1. Property value
Most, if not all, financial institutions will look into the fair market value of the home that you want to buy. This gives them an idea of how much loan you need to acquire said property. This tends to be vital for second-hand homes, and the asking price could be different from their prevailing value. It is also less essential for new or even off-plan houses.
In laypeople’s terms, this will give the financial institution the maximum value of your mortgage. One example that we tend to give people is; if you are planning to buy an existing apartment that is worth 600 000 dollars but its current market value is only $550 000, then the upper limit of your home loan will depend on the latter ($550 000) and not the former ($600 000).
2. Income and existing liabilities
This is also someone most financial institutions will look into when deciding or not whether they can lend you money or not. Lenders want to see if you are capable of paying off your mortgage in a systematic and timely manner, and they do so by looking at your monthly household income.
This must be backed up by relevant documents like pay slips, bank passbooks, Employees Provident Funds (EPF) statements, and even audited accounts. If you are thinking of acquiring or forging documents, get that out of your mind already because this might land you in jail without a chance to pass go. In addition to that, you should also have a paper trail that runs for 3 months or more to prove that you have a stable income.
They also need to compute your existing liabilities and total debt obligations per month. This is to ascertain that you have sufficient cash flow to repay your mortgages after deductible expenses. This usually includes outstanding credit card balances, car loans, and other mortgages. Just like your income, don’t try to hide your debts, as this will also not end well for you.
3. Mortgage options
There are a plethora of mortgage and loan options out there, and you need to find out that fits your needs; the option usually varies based on interest rate types, the amount of time you’ll need to repay it, the size of the loan and also if you are part of a special program.
The majority of mortgages and loans are considered to be conventional loans. If you are a first-time home or apartment buyer or have an unusual situation, you may qualify for a special mortgage. There are also organizations that offer these types of loans, including the US Department of Veteran Affairs, the US Department of Agriculture, the FHA, and even some state governments. Do your due diligence and become familiar with these programs and their restrictions.
There are also shorter-term loans that usually have higher monthly payments but total monthly payments and lower interest rates. This is in contrast with longer-term loans, which usually have lower monthly payments but higher total cost and interest rates. They are generally 30 or 15 years old, but other options are also available.
Interest rate types
You will generally have an adjustable or fixed interest rate. The former may have a lower interest to start with, but they are considered much riskier because, after a fixed period, it can increase or decrease based on the market. The latter offers a lower risk because it doesn’t change over the span of your loan, and this is also a safeguard for you to know that your monthly payments stay the same.
Looking for help?
Are you in Ontario? Are you looking for experts in mortgages, refinancing, leasing, or loans? Nominated in the Top 75 Broker in Canada 5 years consecutively (2013-2018), DLC Estate Mortgages INC. delivers top-quality services designed to meet the needs of commercial clients and private individuals.
Their services include mortgages, refinances, renewals, leasing, loans, and more. We are committed to facilitating the process quickly, efficiently, and confidentially. They serve throughout Toronto. So, what are you waiting for? Give them a call today and make all your dreams become a reality with the help of their team of experts.