The mortgage is a type of credit that is used to buy a home or, if you already have one, a loan of money on the value of it. When signing the mortgage contract, the borrower acquires the obligation to pay the creditor the money borrowed plus the corresponding interest and commissions in installments.
types of mortgages
The types of mortgage vary depending on the financial institution that makes the loan. The most important types of mortgagees are:
- Government agencies. In these mortgages, those who guarantee the loans are the following government agencies:
- Federal Housing Administration (FHA). Here they require a minimum of 580 points in your credit score and the initial payment is usually 3.5% of the total price of the house, that is, the FHA grants you a loan for 96.5% of the price of the property.
- United States Department of Agriculture (USDA). It is focused on those looking for a home in a rural area of the country. In this case, the interested person is not required to have a credit score and in many cases they finance the house 100%, without having to make a down payment.
- Department of Veterans Affairs (VA). As its name indicates, it is focused on members and veterans of the armed forces. Here, too, a minimum credit score is not required and they can finance 100% of the cost of the home without a down payment.
- Government Sponsored Private Enterprises (GSEs). To access this mortgage, the interested person needs a credit score of 620 or more points. These companies usually finance up to 97% of the total price of the house; therefore, the down payment may be as low as 3% of the cost of the home. The two main ones are Fannie Mae and Freddie Mac.
- Private banks. In these mortgages, the loan amount is usually higher than that of government-backed mortgages; therefore, a credit score of at least 700 points is required. In addition, the initial payment to access the loan is usually 20% of the price of the house.
What you need to know: Can I get a mortgage without a social security number (SSN)? It is one of the questions of great interest to many people in our community; and the answer is yes, as long as you have an Individual Taxpayer Identification Number ( ITIN ) and a good credit score. However, it is important to know that in these cases the interest rates will be approximately 6% and the advance payment requirements will be around 15%, that is, they will be higher than normal.
Steps to acquire a mortgage
The Consumer Financial Protection Bureau (CFPB) recommends taking the following steps to obtain a mortgage:
- Determine when you want to buy a house.
- Check your credit reports to see if you have the score you need for the mortgage you want.
- If necessary, improve your credit score before applying for the mortgage loan.
- Pay off your debts, as mortgage lenders often weigh how much debt people have compared to their income.
- Make sure you have enough money for your down payment.
- Before choosing a mortgage, ask the lender the following questions :
- What is the total amount of the mortgage loan?
- What is the interest rate? Is it fixed or variable?
- What is the effective annual rate (APR)?
- What is the term of the loan?
- What are the loan closing fees and costs?
- Does the mortgage have other risky features (such as prepayment penalties or a final balloon payment clause)?
What you need to know: After answering these questions, make sure that the mortgage of your choice is one that fits your budget. To find out how much you can afford, consider your family income, expenses, and savings priorities. Before signing your mortgage contract, consider seeking advice through official government channels.
In addition to mortgage loans, there are also other types of loans that you could have access to.
types of loans
The most requested types of loans are usually:
- Student Loans . This is the type of loans that are used to cover the expenses of a student, especially in the university period. There are two types:
- Federal loans. They are granted by the US Government and are the most convenient, since the payment terms can be better adjusted to your financial capacity.
- Private loans. They are those that come from private financial institutions and, in general, apply higher interest rates and fees than federal loans. Also, they don’t offer much payment flexibility. Therefore, before applying for one of these loans, make sure you really need it and consider exhausting all your possibilities to obtain a federal loan.
- Auto loans . As its name indicates, it is the one used to finance the purchase of a car. There are two options:
- Direct loan. It is obtained directly from a bank or a credit union to which you must pay, in a certain period of time, the financed amount in addition to the finance charge agreed upon under the contract.
- Dealer financing. In this case, the loan is made by the car dealership, to which you must make your debt payments directly.
- Loans to open a business . The Federal Agency for the Development of Small Businesses (SBA, for its acronym in English) offers, in conjunction with private financial institutions, a loan program for small businesses. In this way, they help new businesses cover their financial needs when they start, such as the costs of buying or renting a store, or payroll expenses. Although there are these types of loans in private banks, it is more advisable to approach the SBA program, since there it is possible to extend the payment terms according to your economic capacity.
What you should know: As with mortgages, it is possible to acquire this type of loan without SSN as long as you have your ITIN and, if in the future you qualify to obtain your Social Security Number, you will be able to transfer your credit from your ITIN to your SSN.
Beware of fraudulent loans!
- Do not sign documents without having them reviewed by your attorney. Do not sign documents without carefully reviewing the fine print and, if possible, consider having an attorney review and approve them.
- Do not make payments to any institution other than the one that made the loan.
- Remember that government help is free, so don’t pay anyone who claims to be from a government agency.
- Do not provide anyone with your personal information (SSN or bank account details) without confirming that the person is from the institution that made the loan to you.
What you should know: If you are the victim of a fraudulent loan: Speak Up! File a complaint online with the Federal Trade Commission (FTC) or call toll free at 1-877-382-4357 or 1-866-653-4261.
What is a credit score?
Credit scoring is a scoring system used by lenders to decide whether to give a person a loan. If the financial institution decides to grant it, the terms of the contract will also be determined by the credit score. For all this, it is important that you are aware of what your credit score is and, if necessary, that you improve it. Only then will you have access to the loans you want and the most convenient contractual terms.
good credit score
- It gives you financial security.
- It can help you make large purchases (like houses or cars) without having to make large deposits.
- It gives you loan options to start or grow your business.
- It can give you access to funds for emergency expenses.
- You can bring rewards programs (such as airline miles) with you.
bad credit score
- It may present you with financial obstacles.
- Some creditors may deny you a loan.
- You may be offered higher interest loans.
- For large loans (houses or cars) they may ask for higher deposits.
- You may run out of funds for emergency expenses.
How to check credit score
Your credit report contains all of your credit history: name, address, SSN, your credit card information, how many loans you have, how much money you owe, and whether you pay your bills on time.
Fortunately, it is possible to get your credit report completely free!
Next we tell you what are the steps to obtain it.
1. Request your free credit report. Under the Fair Credit Reporting Act (FCRA), you have the right to request a copy of your credit report from each reporting company. You can request it in two ways:
- Online at: www.annualcreditreport.com (English only).
- By phone at: 1-877-322-8228 (only in English).
2. Correct the errors. Read your credit report carefully, and if you find any errors or fraud, don’t hesitate to report it to the credit reporting company you requested it from. The FTC provides a sample letter to dispute credit report errors . If errors continue to appear on your credit report after you make your report, you can file a complaint with the CFPB .
3. Understand your credit score. There are several credit score models, but the most used is the FICO , which ranges between 300 and 850 points and is based on various factors:
Payment history: 35%
Amount due: 30%
Length of credit history: 15%
Recent credit applications: 10%
Credit Combination: 10%
FICO credit score ranges are classified as follows:
Exceptional: 800 or more
Very good: 740 to 799
Good: 670 to 739
Reasonable: 580 to 669
Poor: 579 or less
4. Improve your credit score. If your score is not the best fit for your financial interests, do everything you can to improve it !
Meeting your financial goals is possible!
We hope that after reviewing this information, you have a better understanding of the world of credit and feel the necessary preparation to apply for your first loan, apply for a new loan or improve your credit score in order to be a creditor of greater financing. Meeting your financial goals is possible!