How to Find Cheap Home Loans
Taking out loans can be expensive in the long run. Often, the interest a person winds up paying by the time they have paid off a loan can be about two to three times the actual amount borrowed. This depends on what rate of interest he/she was able to secure when taking out the loan. In some cases, the only type of loan a person is able to qualify for is a high interest loan. This can be due to a bad credit score, a lack of credit, or several other factors that are considered in determining risk. The good news is, there are strategies that one can use to secure a loan at a lower interest rate. Following are some of the things a person can do to try and get the lowest interest rate possible.
Take Care of Credit Problems
If there are issues on an individual’s credit report that must be repaired, whether these issues are errors or actual delinquencies, it is highly recommended that these issues be worked on, prior to applying for a home loan. In some cases credit issues can be addressed rather quickly, contrary to popular belief. Many times payment arrangements can be made, or agreements on a lesser amount can be reached. Most of the time lenders or merchants are more than willing to work with people, provided they can recover their money. By repairing credit issues, a person can raise the overall credit score and realize a lower interest loan. The process of fixing a credit report is a slow one and may take months before any changes are seen. Still, prior to applying for a significant loan, it is in a person’s best interest to try and reestablish some sort of credit.
Higher Down Payment
When purchasing a home, the higher the down payment, the easier it is to obtain financing at a reasonable interest rate. If a person can save enough to pay 30% to 40% down on a home, the mortgage will be considered a much lower risk as it significantly decreases the risk of loss should the mortgagee ever default. For example, if a home has an assessed value of $100,000 and a mortgage is requested in the amount of $90,000, the bank takes on a significant risk by lending money on the home. Conversely, if a loan in the amount of $60,000 is asked for on that same home, the risk is not as high. Should the mortgagee default on the home loan, the bank will take possession of the home and easily recover their investment by selling. While it may be difficult to save up that much capital, this is just one of the ways in which a cheaper home loan could be realized.
Owner Financing
Often, when a buyer would like to get into a home but cannot obtain a mortgage in the full amount due to credit issues or lack of credit, the seller may be able to hold paper on a certain amount of the sale price. In the beginning the private loan from the seller will almost always carry a higher interest rate, however, a second mortgage at a lower interest rate can be obtained in the future to eliminate the owner financing, and create a lower interest loan payment. Many people use this method in the early phases of buying a home because they are currently working on establishing credit. If a buyer ends up paying on a home for a couple of years at a higher interest rate while working on credit issues, he/she can almost always refinance the home and obtain a much cheaper mortgage at a later date.
Sometimes, a simple web search can help a person compare home loans, look for a cheap mortgage, or even apply for various loans. If a person is looking for an FHA loan, there is a wealth of information about this topic online, along with requirements for being approved, as well as how to apply.