Home Loans

All about real estate loans

Home loans are usually taken out by people who have the income and good credit required to buy a home, but lack the capital to make a down payment. In many cases, the principal borrowed to make the down payment will be tacked onto the principal owing on the mortgage; you'll probably be offered this option if you get your home loan from the same institution that's underwriting your mortgage.

Types of Home Loans

In broad terms, there are three different types of real estate loans available to borrowers: home loans, mortgages and home equity loans. As mentioned, home loans are typically granted to give the borrower a means to make a down payment. Mortgages, on the other hand, come in many different forms, but they all operate on the same principle – the lending institution covers the sale price of the home you're buying, which you amortize over a period of years by paying back the principal plus the interest.

Home equity loans work a little differently. As you pay down your mortgage, you build up what's called equity in your home. The closer you are to paying off your mortgage, the more equity you have – think of home equity as the portion of the home you've already paid for as you've amortized your mortgage. Home equity loans allow you to borrow against the equity you've built up, and they're sometimes referred to as second mortgages.

The best home equity loan is one which won't put you at increased risk of foreclosure if you default. In some cases, if you default on your second mortgage payments but your first mortgage is still in good standing, the holder of the second mortgage can still force you into foreclosure. Try to deal with a lender that doesn't saddle you with these terms and conditions. However, if you're seeking a bad credit home equity loan, you may have no other choice.

Home Loans for Economically Challenged People

The United States government runs an assisted mortgage program through the Federal Housing Administration. These mortgages, called FHA loans, are issued to borrowers through federally endorsed lending companies.

Historically, FHA loans were used to help Americans who would otherwise not be able to finance the purchase of a home achieve their dreams of home ownership. Today, though, FHA loans are usually extended to people who can afford to carry a mortgage but cannot make a down payment and do not qualify for home loans through traditional banks.

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