A shelter falls under the three basic necessities of life and having one that one can call its own it a dream shared by many. Buying a home can surely be a tricky business due to the large amount of investment that is required to be made. We often turn to banks and other financial institutions for this purpose but something that many people fail to understand is that home loans can be of too many types and choosing the one that will suit your purpose will make the process much simpler.

FACTORS DETERMINING THE AMOUNT OF INTEREST:

  1. CREDIT SCORES:

Your credibility and financial condition will ensure the amount of interest you receive also rates vary from bank to bank depending upon its own terms and conditions. Usually it is determined by your amount of existing mortgages. More your mortgages, higher will be your interest rates.

  1. LOCATION:

It might surprise many but your lender might slightly change your interest rates according to the location you are planning to buy a home in.

  1. AMOUNT OF DOWN PAYMENT:

Usually a larger down payment will land you in a better or a lesser interest amount as the more you pay in advance the institution will have to go through a lesser risk.

  1. LOAN TERM:

There are essentially two types of loans available- short term loans and long term loans.

Short term loans usually have a lower interest rate as well as a lesser amount of financial help. This will finally yield a lower overall cost.

On the other hand long term loans, as suggested by the name, is payable for a longer period of time and attract a higher interest rate.

  1. NATURE OF INTEREST RATE:

Interest rates are mainly of two types, fixed interest rate and adjustable interest rate

In fixed interest rate your EMI amount will remain the same throughout the period

And in adjustable rates your EMI will differ from month to month based on an index which reflects the cost to the lender of borrowing of the market rates.

  1. NATURE OF LOAN:

A loan can be of the following types:

  1. A conventional loan: It the type of loan that is not guaranteed by the government.
  2. FHA loans: FHA loans are the loans that are backed by the Federal Housing Administration against any losses faced by FHA approved lenders. Usually the standards for passing for these loans are flexible than conventional loans.
  3. USDA Rural Housing Loan: it is the kind of loan that is offered to people in the rural areas having low to moderate incomes.
  4. VA loan: VA loans are offered to civil servants and veterans and their families to buy homes.
  5. Interest only mortgage loan: The buyer pays only the interest and not the principle, this offer remains valid until a fixed period of time.
  6. Piggyback mortgage loans: The borrower takes out two loans for the same mortgage. This way the buyer can avoid paying private mortgage insurance.
  7. Mortgage buydown: In this case the buyers who want to pay less interest pay a mortgage buydown fee to lower the rate.
  8. Reserve mortgages: This loan is only available to the senior citizen having enough equity (self owned property). Instead of paying to the lender the lender pays you in form of a monthly pension.

TYPES OF HOME LOANS AVAILABLE:

Land purchase loan:

A land purchase loan is given by the lender to the borrower in order to purchase a piece of land that the borrower is willing to construct his home on. The lender usually covers up to 80-85% of the current market price of the land.

Home purchase loan:

A home purchase loan is the loan given by a lender to buy a residential property like a house or a flat. Lender provides 80-85% of the current market value of the property. The interest rates on this can be fixed floating or hybrid.

Fixed: The borrower will pay a fixed amount of EMI throughout the period of his or her loan payment.

Floating: The EMI is changed keeping in mind the market conditions.

Hybrid: In this scenario the EMI will remain fixed for a certain time period and floating for the rest of the period.

Home construction loans:

These loans are given to people who want to construct a home on a pre owned land that they already own. This loan does not cover the cost of the land, and the land on which the construction is to take place should not be owned by the borrower for more than a year.

Home improvement loans:

This loan is given to house owners who lack the money to renovate their home like painting digging up a well, waterproofing, electrical wiring etc.

Home extension loans:

This kind of loan falls under home construction loans and are not differentiated by many banks. They are given to home owners who want to expand their homes. The purpose of expansion will be taken into account while processing this kind of loans.