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Mortgages

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Introduction

Buying of a house is one of the main objectives of any family. The government has stepped in to help its citizens to obtain loans considering the fact that buying and even building of homes is quite expensive. In the U.S. there are various loans which are availed to the U.S. citizens to help them in buy homes. These loans are of various types purposely to suite people with different tastes and salary scales. This essay will examine the documents that are required when a person wishes to obtain such loans. The essay will also examine the advantages and disadvantages of some of the various loans which are available.

Documentation and information

For one to be eligible for a mortgage, he or she will be required by the lender to submit the following;

  • IRS W-2 forms from the previous two calendar years
  • Current pay stubs (Usually the previous two or three)
  • All bank statements from the previous three to six months
  • Documentation of any or all debt that is being compensated
  • Savings and checking account information including account numbers and balances
  • Social security number (Parker, par 4)

Qualifying ratios

These are calculations used by lenders to gauge a borrower’s monthly debt against his or her monthly income. There are basically two types of mortgage qualifying ratios. One is the “housing ratio” which is determined by first adding the payment principle, interest, taxes, and insurance, then second mortgage payments if any , and Homeowners Association fees ,then dividing the total by the borrowers verified gross monthly income.

The second one is the “debt ratio” which is determined by first adding the mortgage payment principle, interest, taxes and insurance plus all other monthly obligations, then dividing the total by the borrowers verified gross monthly income.

Pros and Cons of various loan types

Conventional fixed rate 30 year loan

This type of loan lets me as a borrower’s plan my budget as my payments remain the same throughout the life of the loan. There’s protection against the rate fluctuations of an adjustable-rate mortgage .The bad thing about this type of loan is that it has a higher interest than a 15-year fixed-rate mortgage, it also takes long to pay off the loan and it has a higher total amount of interest paid .

Conventional fixed rate 15 year loan

This loan has generally a lower interest rate, but a higher monthly payment than a 30-year fixed rate mortgage .It has a shorter time to pay off the loan and also lower total amount of interest paid

Conventional 3/1 adjustable rate 30 year loan

This type of loan will only will offer me lower initial monthly payments than a fixed-rate mortgage, but one will remain worried about payment fluctuations each year thereafter.

FHA 30 year fixed rate loan

This type of loan is a guarantee program that is offered by the government to help consumers qualify for a home mortgage .This type of loan is good in that its credit criteria is no as strict as a conventional loan , it is easier to qualify , has low down payments and lower monthly mortgage insurance payment. The disadvantages are; it has limited loan size and the presence of mortgage insurance premiums might scare people off (Weber par 1)                                            

Conclusion

This essay has looked at the necessary documentation and information required by lenders to fund mortgage loans. It has also looked at the qualifying ratios used by lenders to award loans and the pros and cons of the various loan types.

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