What mortgage conditions are available in 2020? What are the pros and cons of this product? Should I get a mortgage or should I wait?
Not all US residents can save up for an apartment, but to solve the problem, you can take a loan to buy a home. Should you take a home loan or not?
What is a mortgage?
A mortgage is a sum of money borrowed from a financial institution or bank to purchase a house. Under the agreement, the client immediately becomes the owner of the home. But, if he or she vio-lates the terms of the contract, the bank may seize the property, sell it and send the proceeds to repay the debt.
There are 3 main types of home loans:
- for the purchase of housing from the developer;
- for the purchase of real estate in the secondary market;
- non-targeted loan secured by an apartment already held by the borrower.
What documents do I need for a home loan?
Depending on your unique situation, here is a list of documents you might need when applying for a mortgage:
- Tax returns;
- Pay stubs, W-2s or other proof of income;
- Credit history;
- Gift letters;
- Bank statements and other assets;
- Renting history;
- Photo ID.
Pros and cons of a home loan
Before you go to the bank and apply for a mortgage, you should consider its pros and cons.
- Own housing – the issue of living gets solved when you buy your own apartment. You won’t have to live with relatives or wait until square meters are presented to you as a gift. Personal savings are collected for too long, renting an apartment makes you overpay in the end;
- Partial savings – compared to renting someone else’s housing, you will not end up with anything. In addition, you can save with subsi-dies and benefits provided by banks;
- Timeliness – while you pay the money for the apartment, its value will have time to rise repeatedly;
- Investment in real estate – the most profitable option is to invest in apartments. Housing can always be rented or sold. It also saves money that could be spent on renting someone else’s housing;
- Insurance – the bank insures the borrower of disability;
- Registration – you can immediately register the borrower and his family in the new apartment.
- Cost – due to the high cost and the crisis, less than 10% of the population can afford a mortgage. In such cases, the bank may extend the payment term to 50 years;
- Overpayments – they can reach up to 100%. These are loan payments, compulsory insurance and notary fees;
- The complexity of registration – a number of requirements are put forward to the borrower, such as: a proof of income; availa-bility of registration; provision of guarantors for the loan. The whole procedure for collecting documents takes a lot of time and effort;
- Long term – a mortgage is issued as a long-term loan for up to 30-50 years. In this case, you will have to abandon the excesses for a long time since loan installments must be paid monthly. Sometimes it stretches for a lifetime;
- The risk of loss of housing – it is necessary to pay monthly payments strictly and on time. If this does not happen, the bank may seize an apartment. In such a long time, anything can hap-pen: the death of relatives, illness, crisis. Therefore, you need to clearly calculate all the possibilities before applying for a mort-gage.
Should I get a 20 or 30 year mortgage?
The loan term must be selected individually, taking into account financial opportunities and the likelihood of a change in the future income situation. Experts recommend taking a loan as long as pos-sible. This is usually 20 years. The monthly payment will be more comfortable in this case, and if there is a possibility to reduce the overpayment, you can repay the loan ahead of schedule.
What are the conditions for taking a mortgage today?
Banks offer to take a home loan for the purchase of real estate from a developer or in the secondary market for a period of up to 10–20 years. When applying for a loan, the borrower must pay a minimum of 20-30% of the cost of housing.
Below you can see average mortgage rates in 2020:
|30-Year Fixed Rate||3.530%||3.750%|
|20-Year Fixed Rate||3.560%||3.750%|
|15-Year Fixed Rate||3.130%||3.360%|
|10/1 ARM Rate||3.580%||3.830%|
Is a mortgage really worth it?
When it comes to such long-term loans, you need to calculate all the risks. Firstly, the amount of regular payments should not exceed 40% of your monthly income. Secondly, be sure to think over the ” safety net” in case of loss of source of income.
It also does not hurt to insure yourself against the risk of loss of work.
Everyone decides for him-/herself whether it is worth taking a mortgage. But today there are many banks and insurance with different programs and conditions that will help facilitate the loan repay-ment process.