Sparrow Home Loans offer financing options that support long-term financial goals. They are secured loans that use real estate as collateral and require monthly payments of both principal and interest.
Purchasing a property often requires a down payment, which means taking on a mortgage. Understanding your financing options can help you choose the best home loan for your needs.
There are many factors that can affect the mortgage approval process. A good place to start is by understanding how lenders evaluate your creditworthiness. Lenders consider your credit score and debt-to-income ratio, along with other information like employment history, income level and down payment. A higher credit score and a larger down payment typically equates to a lower risk for the lender, which may result in a lower interest rate.
Another factor to keep in mind is the impact of changing interest rates. Mortgage rates can fluctuate due to economic factors and monetary policies set by the Federal Reserve. Historically, mortgage rates tend to decline during economic downturns and rise during periods of strong growth. Keeping up with trends in mortgage rates can help homebuyers better time their loan applications to secure the most favorable rates.
Once you are approved for a mortgage, you’ll work with your lender to lock in an interest rate and complete the closing process. Associated Bank makes this easy with our Excellend(tm) online loan application and superior customer service.
Mortgages can be broken down into two categories: conventional loans and government-backed loans. Conventional mortgages are offered by private lenders such as banks, credit unions and online lenders. These loans must meet standards to be resold to the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which gives them advantages for lenders but often requires more stringent qualifications for homebuyers.
Government-backed loans, such as FHA and VA, are backed by the government to support homeownership for those who may not qualify for conventional loans. These programs offer low down payments, flexible qualification requirements and potentially lower interest rates and closing costs. Homebuyers should always speak to their lender and consider the benefits of each program before making a decision.
Home Equity Loan
Home equity loans use your home’s equity as collateral, allowing you to borrow against the value that has accumulated over time. These loans offer lower interest rates than personal loans and credit cards, and they may have longer repayment terms, making them a good option for funding large, long-term projects or consolidating debt. But like any type of loan, home equity loans come with inherent risks that you should be aware of before tapping into your home’s equity.
One of the biggest risks with home equity loans is that if you miss payments, you could face foreclosure. This is because the lender would have a right to take over and manage your property until the loan is paid off. Taking on this risk is typically not a good idea if you need cash to cover short-term financial needs, such as paying for unexpected expenses or bridging a pay gap.
Another risk is that some home equity loans have variable interest rates, which can cause your monthly payment to fluctuate over time. These fluctuations can make it challenging to maintain a budget, particularly if you have multiple debts that are subject to different interest rates and repayment terms.
Before you apply for a home equity loan or HELOC, it’s important to understand how the process works and what the eligibility requirements are. Lenders generally look at your credit score, debt-to-income ratio and the amount of equity you have in your home. They also often require a home appraisal and inspection to confirm that the current market value of your property is accurate.
When it comes to home equity loans, you’re usually able to borrow up to 80 percent of your home’s appraised value minus your mortgage balance. The maximum amount you can borrow depends on the lender, but it’s a good rule of thumb to keep in mind when planning for your home improvement project.
Home Equity Line of Credit (HELOC)
Home equity lines of credit are revolving loans that allow homeowners to borrow against the equity they’ve built in their homes. These loans often have higher borrowing limits than traditional mortgages and can be used to fund a wide variety of expenses, from home renovations to debt consolidation. However, it’s important to understand the unique pros and cons of these loans before you apply.
The primary difference between a HELOC and a traditional home equity loan is that with a home equity line of credit, you can withdraw funds as needed during the draw period—which typically lasts five to 10 years—and only be responsible for interest payments. Once the draw period ends, you enter the repayment phase, where your payments will include both principal and interest until you’ve paid off your outstanding balance.
HELOCs are ideal for homeowners with flexible spending and budget plans who may need additional financial flexibility. They can also be useful for funding ongoing expenses or projects with variable costs. However, it’s important to remember that tapping into home equity isn’t a substitute for emergency savings and long-term debt reduction strategies.
If you’re interested in a home equity line of credit, talk to one of our lending experts. We’ll walk you through your options, explain the process, and help you find a solution that matches your goals.
We can provide an estimate of your borrowing limit based on the amount of equity you’ve built in your home, and the current value of your property versus how much you still owe on your mortgage. We’ll also verify your income and conduct a credit check to ensure you have the financial flexibility to manage payments.
In general, lenders require a minimum credit score of 620 and enough home equity to qualify for a line of credit. Having a higher credit score may improve your chances of qualifying and can help you secure lower rates. Additionally, a low debt-to-income ratio (DTI) can help you improve your odds of approval and get the best available rates. We can recommend credit counseling services to help you develop a plan to reduce your debts.
Construction Loan
A construction loan helps finance the building of a new home. Borrowers typically make interest-only payments during construction and once the construction is complete, the loan is converted to a traditional mortgage with fixed monthly payments. Typically, borrowers will go through a single approval, closing, and loan for both the construction and permanent financing, which can reduce fees and simplify paperwork.
A stand-alone construction loan is a great option for people who have enough savings to cover their living expenses and mortgage payments while the home is being built. It may also work well for those who want to lock in their interest rate before construction starts.
Construction loans require a significant down payment, typically 20% to 30% of the total project cost. This demonstrates your commitment to the project and lowers the lender’s risk, which can help you qualify for better interest rates.
To get started, meet with a mortgage loan officer to discuss your finances and determine the best loan type and budget for your project. Gather documentation and apply for preapproval. This will include verification of income, employment and assets. You should also have a signed purchase contract with your builder or developer and an itemized budget, as these will be required by the lender to facilitate the application process.
Once you are approved, you will receive a loan agreement and deposit the necessary funds into your construction account. The lender will release funds incrementally based on specific milestones, such as framing and insulation being installed. It is important to stay on top of the paperwork and submit all requested documentation for each stage, as delays in milestones or missed document requests can push back payments and potentially halt construction.
Having precise measurements with digital takeoff plans will ensure that your budget allocation is accurate. It will also enable you to provide transparent financial insights to your clients, fostering their confidence in the projects you’re overseeing. You’ll also be able to reduce the amount of time spent on manual calculations by implementing an automated takeoff tool. This saves you money by reducing labor costs and helping your team focus on the most critical tasks at hand.