DSCR vs. No DSCR Loan: What's the Difference?
If you’ve tried acquiring financing for your investment purchase but can’t get a conventional loan or other solution, like a conventional loan, you...
The odds are that buying a home will be the largest purchase you ever make. As a result, you want to make sure that you’re choosing the type of mortgage that makes the most sense for your financial situation. You also want to make sure that your mortgage won’t cost you more than it needs to. To accomplish this, it is important to work with a one-stop shop lender that will offer you the best rate and terms available to you.
With the right amount of research and consideration, you can buy your dream home without giving up an arm and a leg.
A mortgage is a loan provided by a lender for the specific purpose of purchasing a home. These loans are incredibly common as home prices can run extremely high, and it can be difficult for many people to pay hundreds of thousands of dollars up-front in cash.
Instead of paying all that money yourself, you partner with a lender where they pay the cost up-front, and you pay them back monthly.
Like any type of loan, a mortgage loan comes with a lot of requirements to protect lenders. After all, their overall goal is to get their money back. For that reason, you are required to go through an application process to ensure that you’re a trustworthy borrower and have the means to pay them back.
The world of mortgages involves various terms that can be confusing and overwhelming for first-time homebuyers. After all, how can you possibly know what type of mortgage loan is right for you if you don’t understand the key terms and definitions being used throughout the process?
So before we dive into the pros and cons of some of the different mortgage options out there, we are going to briefly cover some of the crucial mortgage terms you need to know:
Now that you better understand some of the key mortgage terms, we can cover the different types of mortgage loans available to homebuyers. Each option is different, and what works for some people may not work for others.
As a result, keep your unique financial situation in mind when considering the pros and cons of each type of mortgage loan.
Fixed-rate mortgages are loans that maintain the same interest rate throughout the entire life of the loan. As a result, you pay the same monthly payment from start to finish.
Fixed-rate mortgages can come in terms of 15, 20, or 30 years. You may rack up more interest in a longer-term fixed-rate mortgage, and it can take you more time to build equity in your home.
Adjustable-rate mortgages are loans that have a fluctuating interest rate depending on the market. These loans typically start with a fixed rate for the first few years before becoming adjustable.
This type of loan is considered riskier than a fixed-rate mortgage, but it has the potential to save you a lot of money in interest.
An interest-only mortgage only requires the borrower to make interest payments on the loan for a certain amount of time, up to several years. This is different from typical loans which require payments on both the principal loan and interest.
Interest-only payments can last the entirety of the loan period, with the borrower paying their principal loan amount in full at the end of the lending period. They can also be offered as an option for a specific time period or given as an option as-needed. In this case, they’re a type of adjustable-rate mortgage.
A full documentation loan requires the borrower to verify their income and assets through official documents like W-2 forms, paystubs, tax returns, profit and loss statements, veteran benefit statements, and social security statements.
Full documentation loans can even go so far as to check investment statements, student loans, credit card bills, child support, motor vehicle titles, or any other official documents that give insight into their financial standing. Having a stellar financial record can help you negotiate a lower interest rate on your loan.
Full documentation mortgages can be fixed, adjustable-rate, or interest-only depending on your needs and the needs of your lender.
Low documentation loans are similar to full documentation mortgage loans, but they’re better suited to self-employed individuals or business owners who have fluctuating income and cannot prove their ability to repay through W-2s, tax returns, or pay stubs. Individuals qualify through different means such as high credit scores, asset ownership, or large investment accounts.
Like full documentation mortgages, low documentation mortgages can be fixed, adjustable-rate, or interest-only.
With this information in mind, you may be wondering how to qualify and apply for a mortgage loan.
Here is what you’ll need to qualify and apply for a mortgage loan:
Your interest rates will be determined based on the documentation you provide.
The mortgage application process can be very tedious and overwhelming if you’re not sure what to expect. However, if you are proactive and plan, it can be a seamless process.
Here are some things you should expect to provide to a lender when applying for a full doc mortgage loan:
Applying and qualifying for a mortgage can seem like a lot of work -- but just take a systematic and calculated approach. It will all be worth it in the end when you get the keys to your new home.
Choosing your type of mortgage is a huge decision. However, you can determine the best type for your situation with the proper research and effort.
If you have any questions along the way, feel free to reach out to the lending experts at Vaster for advice and expertise that will save you time and money.
Sources:
Mortgage Definition | Investopedia
Mortgage Glossary – Mortgage Terms & Definitions | Bank of America
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