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6 October 2008
Rates as low as 6.7%

Home Loans Explained

What is considered a home loan and why might you need one? Well home loans are just another name for mortgages. Why you need one is simple: to buy a home when you don’t have the money sitting in your account, you need a loan. They are a type of funding that allows you to purchase a home, without having the money in your bank account, while fronting the loan with collateral. Collateral on most home loans is going to be the property itself. While it may appear simple in our explanation, there are several aspects to homeowner loans that can make the legal jargon a little hard to understand.

Home loans are secured loans, which is what we mean by collateral. The collateral secures the loan so that the bank has recourse in case you default. Another aspect of loans is understanding how loan to value works. For example with home loans you may not be able to get the entire purchase price of the house in the loan. Loan to value is the net worth of the home. The home purchase price may be 250,000 pounds, but on an appraisal of the house by the lender they find it is worth only 220,000 pounds. If you really want to buy the home the lender will only give you the 220,000 pounds, which means the loan to value is less than a hundred percent. This is a rare case and just an example of how home loans could work. What happens more often with homeowner loans is that the purchase price of the house is within the appraisal, but the current market is offering 100 percent to 85 percent loans. In other words you have to have high credit scores in order to get the 100 percent loan to value; otherwise you need a deposit for the loan.

At iSecured Loans the home loans are related more to the type of income you have. For a person who needs a self certified home loan you can expect 85 percent to 95 percent loan to value rather than the 100 percent. This is because the individual works from home, so they are more of a risk. In lending for homeowner loans it is all about the risk you pose to the lender as well as your current financial situation.

There are other aspects of home loans to consider besides the loan to value and credit situation. Home loans can be second mortgages in which you get a second loan on the home to get some of the equity out. In this situation you would be gaining excess cash for repairs, paying off other types of bills, and a variety of other reasons. A remortgage can also be used in this situation in which you get a better interest rate because you have established a better credit report since you obtained the first loan. Home loans don’t have to be about repairing the home, although that is certainly another possibility in the mix.