Home loans – For that ultimate dream house

A solid credit record is always one of the key factors in getting a loan, especially when buying a property. Lending is a business... So, obviously credit lenders like to follow applicants presumed as "credit happy". Hence, before applying for a mortgage, one should pay off all his bills and overdrafts. Besides a good credit history, information regarding sources of income and financial obligations, such as child and spousal support debts, monthly investment statements, etc., are also vital to the lenders.

There are two types of home loan programs:

Conventional – By default, a home loan is a secured loan. However, many lenders are also offering unsecured home loans to reach out to maximum number of loan seekers

Governmental – There are a variety of governmental programs, and state and local housing plans. One should choose wisely, as each program varies by location, and has its own pros and cons - council homes, building societies, etc.

A secured home loan is cost-effective when one needs a large amount of money and can be obtained by offering something valuable as collateral. An unsecured home loan, on the other hand, is advantageous for people who are hesitant or incapable to offer collateral and have an urgent or temporary requirement. For a secured home loan, lenders offer low interest rates, negotiable repayment terms and easy loan clauses. But, for an unsecured home deal, they charge high interest rates with virtually fixed pay back terms and conditions.

On the basis of the rate of interest, home loans are categorised as:

Fixed rate loans

Variable rate loans

The rate of interest in a fixed mortgage rate is directly relative to the term chosen by the borrower, i.e., if the borrower chooses a longer repayment plan then the monthly rate of interest will be high. But, if he chooses a shorter repayment plan then the monthly rate of interest will be low. A variable mortgage rate, on the other hand, has varying interest rates depending on the type of product and market status.

Applying for a loan is all about getting your financial house in order. A loan application process should always begin with through knowledge of one’s requirement and proper research of the available options in the loan bazaar. For a home loan application, complete knowledge of one’s potential budget and the type of mortgage that will work best, are vital.

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