What You Need to Know About Home Loans

Have lots of questions about home loans? Take a look at this simple guide for the basics and then contact us for more information! Home loan rates are at a historical low so it’s a great time to buy a house! You have saved for years to make your dreams of home ownership come true, but there is more to getting a home loan than simply walking into a bank with a plan and walking out with a loan. Before you take the plunge, here are some important things you should know to help make acquiring a new home a whole lot easier.

What exactly is a home loan?

It’s always good to start off with the basics. A home loan or mortgage is a loan taken out from a bank in order to purchase property or to make improvements on your current home. When getting a loan, you’re promising the bank that you will pay back the funds within a certain time frame and for a certain cost. A mortgage is a legally binding contract so it’s important to work with a lender that you trust. It’s also important that you clearly understand the documents you’re signing when taking out a mortgage.

Get organized!

After the housing bubble broke in 2008, qualifying for a home loan became much more difficult. But have no fear – as long as you have the following five things, you should be able to qualify with no problem.

1. Solid financial documentation

Banks want to know that you have the financial means to pay back the loan they gave you, so you must provide copies of financial documents that can substantiate your ability to pay. Financial documentation may include:

Tax returns
Tax wage forms
Paystubs
Banking statements
Investment statements

Your lender will also check your credit score at least once during the processing phase. High credit scores can provide you with lower interest loans. If your credit score is not the greatest, you may still be able to qualify for the loan, but at a higher rate.

2. A down payment

Banks as a rule will not provide you with all of the money you need to purchase a home. As you may have realized by now, houses are expensive, and people often take 30 or more years to pay them off, which is a long time for the bank to wait on their returns. For that reason, banks will usually loan out 80% to 90% of what you need, which leaves you to come up with the remaining 10% to 20%. For example, if you are purchasing a home valued at $250,000, you would need to put down $25,000 to $50,000.

3. Closing costs

While you may have enough money for the down payment and the monthly payment on your prospective home loan, you must also factor closing costs into the equation. Closing costs cover the fees associated with industry-standard mortgage requirements, such as appraisals, legal paperwork, and home inspections. Application fees and loan origination fees may also be lumped into closing costs. According to the Federal Reserve, your closing costs will range between 3% and 6%, depending on your lender and home seller agreements. People with low credit scores may need to pay higher closing fees, and your lender is required by federal law to give you a copy of your credit report at closing.

4. Homeowner’s insurance

As a homeowner, you must have insurance to protect both your investment and your mortgage company’s interests. You should expect to pay around $3.50 per $1,000 of the home price annually. So, on a $250,000 house, that comes to around $875 per year.

5. Personal property taxes

Property taxes for homes are usually charged by local governments. Though the amount you will pay depends on your jurisdiction, it can be as much as 3% of your total home value and may include title transfer and recording fees. Some lenders require you to place the planned payment into an escrow account before closing.

Types of home loans

The friendly staff at American Bank & Trust can help you with several different types of loans –

Fixed rate mortgages
VA Loans
FHA Loans
USDA Rural Housing Loans
Construction Loans

Now that you know the basics, it’s time to get started on your new home loan! Our mortgage loanexperts at are happy to answer any additional questions you may have, so contact us today!