Geoffery Thornton asked:


We list below a brief explanation of each of the more common types of home loans available to home owners and home buyers. Before you go to one of the sites like wikianswers or Yahoo! Answers (and sorting through a dozen spam comments) give this page a quick look as most likely you’ll find your answers here.

Mortgages

There are a dozen different types of mortgages, but in the interest of simplicity, we’ll just explain the basic idea behind a mortgage which is that you take out a loan using the home you intend to buy as collateral against the loan. If you fail to make payments, the lender will ultimately have the right to your home and can foreclose or sell it. Mortgages do come with interest rates, like any other loan.

Subprime Lending

Subprime lending refers to a lender providing credit to borrowers who don’t yet meet prime underwriting guidelines. Subprime borrows have a higher perceived risk. This lending is applied to people with a history of delinquency or defaulting, those with bad credit, or those simply with limited debt experience (eg students).

Subprime lending was a common type of lending during the 2007 credit crunch. Now… according to the Wall Street Journal, 61 percent of all subprime borrowers actually do have the ability to take out a prime conventional loan. So it is wise to know your options before putting yourself at risk.

Home Equity Loan

A home equity loan is simply a loan wherein a borrower puts the equity of their house up as collateral. This is common as a means of paying for much needed home repairs, paying for hospital bills, or even financing the purchase of a new car. Equity loans are given in one lump payment generally with a fixed, as opposed to adjustable, interest rate.

It’s not advised that you take this route unless you absolutely need to, and can be absolutely certain that you can pay it off. That said, this can be an excellent way of turning your home into an investment for starting a new business or paying unforeseen expenses.

Home Equity Line of Credit

A Home Equity Line of Credit, or HELOC, is a different form of Home Equity Loan. Whereas a Home Equity Loan uses the home as collateral for a lump sum, the HELOC uses the home as collateral for a line of credit. The line of credit is offered for a “draw period”, which could be anywhere from five to twenty five years, and repayment will be of the amount drawn, plus interest, which may be adjustable. This type of loan has become popular in the US because it can be deducted from one’s taxes.

Refinancing

Refinancing is basically the trading of one debt for another. The benefit can be a lowered interest rate or smaller monthly payments. In recent years, this kind of debt-swapping has become popular thanks largely to the strife in the global economy, leaving home owners unable to meet the demands of a loan taken out before the UK and US recessions.



ROLAND

Anthony Dean asked:


This article is hopefully going to explain many of the things people believe about mortgages that are actually false.The most important thing you must realize about a mortgage is that what you believe it to be is actually wrong. For one thing, although we commonly call them Mortgage home loans, this is not at all what they actually are; in fact, they aren’t loans at all, nor are they something that has been given to you by lenders. The mortgage is a legal contract between the mortgagor who is buying the property and the mortgagee, the person supplying the finance and security against the property. In fact, in reality, this isn’t the debt but the security required by the lender to protect their interests for the duration of the term.

A mortgage is used as a method by which individuals or businesses can purchase residential or commercial property without paying the full value upfront. There are also misconceptions about how they work so below is a description of how the process works. Being the financier, the mortgagee is the person who lends funds to the mortgagor or borrower. A security measure designed for purchasing properties, called a lien, is enforced until the mortgage is cleared at the end of the term.

This is the collateral or the security for the mortgagee who has provided the security instrument. Information about the lien is registered at a county courthouse, or similar, to ensure the contract is official and binding. The lien stays in force while the debt remains but the property is actually owned by the mortgagor. This is a strange situation where the mortgagor still owns the property even though the debt still remains to be paid.

This means the only occasion that can arise whereby the mortgagee can legally sell your home is if you stop making payments and it needs to be sold to repay the finance used to purchase it. In the unfortunate event that requires the property to be sold or Foreclosed, then the case will need to be presented to the courts for approval. The reason behind this process is to ensure the legal procedures have been followed and also why it is called Judicial Foreclosure. Obviously there is much more to the subject than this, but these are the basic foundations upon which the mortgaging system has been constructed.

Despite increasing numbers of the population having a mortgage, it is amazing how few people actually know what they are and how they work. A common misconception is that a Mortgage is a Home Loan but this is false and people need to be educated about the fact that it is not a loan at all. The mortgagor is the person who owes money to the mortgagee (the person who finances the deal) using a legal contract called a mortgage. Actually, it is in fact a legal document that is designed to ensure the lenders financial interests are secure.

The facility that a mortgage creates means individuals and companies can acquire land or property without needing the full face value to purchase it at the time. To help understand how this works, some important information is discussed here. Unfortunately it is our own common use of word like Borrower and Lender that has mislead people into thinking a mortgage is a loan when they should be referred to as Mortgagor and Mortgagee respectively. A lien is a means by which the mortgagor can purchase a home but it is the mortgagee that retains legal ownership until the arrangement between them has been completed (the debt is paid off).

This system works so successfully because the risk of loss on the part of the mortgagee is all but eliminated as they have legal possession of the property until the debt is completely repaid. This lien than becomes a matter of public record when it is registered at the county courthouse or equivalent. This act makes the purchase and the ownership of the house official and no-one can transfer this ownership until the debt is fully paid off. So how this works is that the mortgagor (you) owns the property completely even though the mortgagee has possession of the mortgage but not the title.

The only time the mortgagee has any rights over your property is in the event that you default on payments when he can sell it to recover the outstanding debt. This is the dreaded process referred to as foreclosure but if the property is used as security, then the foreclosure must go through the court system. This is done in order for it to be considered legal; this type of foreclosure is referred to as a judicial foreclosure. This is only a short introduction as the subject is much more complex but this information should make this important issue much clearer.



GARTH

amyann16 asked:


My husband and I are 1st time homebuyers. We have been preapproved for a house loan, but are not having luck finding what we want. We have toyed with the idea of building our own. What are the differences between getting a preapproved loan and buying a already built house and going through getting a construction loan? Do you have to put money up front for a construction loan? Do you make mortgage payments while the house is being built, or do you wait until the house is completed? Is there a time frame that the house must be built within? If we were preapproved for a certain amount with a homebuyers loan, would we likely be preapproved for the same amount for a construction loan? What other differences should I know about? Since we are first time homebuyers we do not have much collateral (we do have some savings, but not a ton), would that affect our ability to get a construction loan?

DEVIN