There are many purchases that you’ll make in your life, but one of the most significant, and possibly life-changing, is a house. Owning a house requires a sense of responsibility, but it also showcases your independence and financial freedom.
One of the biggest hurdles that first-time owners face is getting the right financing when looking to buy a property. A common way to finance a new home is by obtaining a loan.
Differences of a Home Loan from a Mortgage
Home loans and mortgages are often used in the same context but they are different from one another—here’s why:
- A home loan is used to fund the purchase of residential real estate, while mortgage loans can be used for either commercial or residential properties.
- When you take out a mortgage, the property serves as the collateral for the loan until repayments are completed. The loan provider is the owner of the property until you have fully paid off the mortgage.
- Home loans are used for a variety of purposes aside from buying a house. You’ll receive the loan amount and pay it back at fixed or flexible interest rates.
Reasons to Apply for a Home Loan
If you’re looking to buy a new property or you already own one but want to remodel it or add on extra rooms, then a home loan maybe your best option. There are no reasons not to get a home loan if you meet the basic criteria and have a sound financial plan in place. You can apply for a home loan for different purposes such as:
- To Buy A House
Before deciding on a home to buy, it’s a good idea to apply for a home loan pre approval first. This will let you know whether you qualify for a home loan before you get your heart set on a home you’d like to buy. A preapproval also helps direct your search for a new home since it allows you to determine how much you can actually borrow.
The flexibility that home loans offer makes it a suitable choice for borrowers who don’t want a traditional mortgage. Some property developers only require a certain amount as down payment and you’ll be allowed to move into your new home right away.
- To Construct A New House
Some people who want to own a new house prefer to build one that meets their design or style preferences. Unlike pre-constructed properties that don’t suit your taste, constructing a house from the ground up gives you the freedom to follow your design plan. Home loans offer borrowers the ability to choose whether they want to buy a house or build one. The proceeds from a home loan can be used to finance the construction of a new house. When looking for a home loan, you should compare different home loan programs from several lenders.
- To Purchase A Piece Of Land
The main reason to get a home loan is to purchase land so that you can build your house immediately or in the near future. Another way that people use home loans is to purchase pieces of property for investment purposes. Properties that you purchase now with a home loan will usually appreciate in value over time. They’re also safer investments. A house is usually a safer investment than most kinds of bonds, stocks, and other common forms of investment that operate in a volatile market environment.
- To Upgrade An Existing Home
Home renovations are another common reason for getting a home loan. You may need to replace worn carpet or add an extra room to their house. In these cases, they’ll need to apply for financing to pay for the work. Some homeowners choose to renovate their house themselves, but others cannot do so on their own and turn to contractors for the job. You can use the money you receive to completely remodel your existing house or to perform minor repairs and upgrades. Doing so will give you a house that has a higher market value, and the possibility of selling it in the future.
Takeaway
The choice is ours whether to buy, build or upgrade your home—these are all potential investments for your future. There are several things that you need to consider while choosing home loans. There are a lot of lenders that offer home loans, but all it takes is a little research to find the right one for you. It’s a good idea to keep your mind open when comparing the various deals offered to you. The loan amount will be greatly influenced by the applicable interest rates; therefore, the lender that you choose should explain to you the rates and fees that are added to your loan.
