The 5 Most Popular Loans – Part 2
Housing Loans
A housing loan, often called a mortgage, is a long-term arrangement based on your credit score. The lender will check your total monthly income against the required payments, and you’ll have to be able to provide proof of some form of regular income. The lender will also want to know about all of your debt and compare it to the total amount of income you generate. Your credit will be checked thoroughly and must be in good standing.
If bankruptcy, unpaid or overdue loans or repossessions appear on your credit report, your chances of approval may be low. If you are having trouble meeting the requirements of private lenders, look into FHA loans, which are government-insured and provide a way for Americans with credit issues to buy homes.
The average interest rate for a typical 30-year mortgage is between 4 and 5 percent. Some lenders apply a variable rate, which means that your rate can change during the life of the mortgage. A fixed rate is always a better choice if you can get it. Before you sign the deal, you need to look closely at the total cost of borrowing, the interest rate, term, and prepayment penalty. If you’re uncomfortable with any of these points, try to negotiate with your bank for better options. Most banks are willing to help you find solutions, especially if you have a good credit score.
A mortgage allows you to buy a home instead of renting, meaning you and your family can settle and that your payments build up equity in a real asset that you own. One of the great things about mortgages is that because they’re so popular, you’re likely to have many different options, and because the house itself is collateral, you don’t have to pay a huge amount down. However, your credit score will always dictate the quality of your loan. As long as you go in understanding your options and the terms, and as long as you budget carefully, you’ll be able to secure the home of your dreams.
Education Loans
An education or student loan is a loan used to pay for school and education-related expenses. They don’t require any form of collateral, but the application process can be time-consuming. There are two types of education loans – government and private. Government or government-subsidized options usually have easier terms and are worth looking into as a first choice.
To get education financing, you will need to provide some relevant documents, including proof of residency, proof of income, proof of identification, and a bank statement. You will also need an admission letter from your school, documents detailing your fees, mark sheets such as grades, and a breakdown of the courses you’re pursuing.
It’s important to note that most education loans will not cover the full cost of your tuition and fees and that you’ll need to reapply each year. Education is still worth financing, even with debt, because it’s investment in yourself and your earning potential. The career you end up pursuing thanks to your education can help pay for what you borrowed. The not-so-great thing is that if you find yourself in school longer than you expected or if the career you hoped for is not as accessible as you’d thought, your loan can become a significant burden. Many Americans in their 50s are still paying off student debt, so it pays to be careful about what you borrow.
Education loans usually carry a fixed rate, and these rates are relatively low. Because it’s long term, you won’t have to pay the debt back until well after you graduate.
The Bottom Line
Borrowing money is serious business, and you need to approach your decision with a realistic plan for how you’ll use the money, how you’ll pay it back, and how you’ll reduce your need to borrow in the future. Remember, every time you borrow you are paying someone else for the privilege of using their money!
The information given here is a general introduction to these types of loans. Before you borrow, you should do further research on the type that interests you, and on the lenders you’re considering. Knowing what you’re getting into can save you lots of trouble and hardship down the line. Borrowing isn’t always a bad thing, and many a successful career has been built on the responsible use of credit. You’ll need to look before you leap, though, and think twice or more before you sign!
