Know All About Loans
0001 Home Improvement Loans
A home improvement loan is designed to help borrowers make improvements on their homes. It can be used for such things as adding a new room, remodeling a kitchen, building a pool or re-carpeting the entire house. As a secured loan, collateral is required – current equity in the home. To qualify for possible tax deductions, the improvements must be on the borrower’s primary residence, not rental property, second home or vacation home.
The interest rate on the home improvement loan is typically lower than other secured loans because it is less risky, plus it tends to enhance the borrower’s home. Borrowers must own their home or be making payments on their home to be eligible for a home improvement loan.
0002 Home Improvement Loans
Home improvement loans are designed to help borrowers remodel or add additional features to their homes. Kitchen and bath remodeling is the most popular home improvement, but other purposes such as installing a new roof, building a garage, or adding a swimming pool are other common improvements. There are two types of home improvement loans available to most borrowers: Traditional Home Improvement Loans and FHA Title I Home Improvement Loans. With either type, the borrower must own or be buying the home since it is to be collateral for the loan.
Traditional Home Improvement loans require the borrower to have substantial equity in the home, usually 20 percent or more. The existing equity in the home, along with that created by the improvements, is the collateral. The lender secures the loan taking a first or second lien. Most home improvement loans are for ten years or less, although some lenders have programs allowing for up to 15 year repayments depending on the amount of money borrowed. As with mortgages, the interest paid on home improvement loans is tax deductible. Interest rates on home improvement loans are usually significantly lower than those for personal loans because lenders consider them risky.
FHA Title I Home Improvement Loans are a U.S. Government program to help borrowers rehabilitate or improve their homes just like traditional home improvement loans. This program is available through approved lenders, usually banks. Certain types of improvements such as swimming pools and barbecue pits identified as luxury items are not allowed under the Title I program. With Title I loans, the borrower is not required to have any equity in the home for collateral. The repayment period can be as long as 20 years and borrowers can have had past credit problems providing they have demonstrated recent acceptable credit. With loan requests under $7,500, the lender does not take a lien on the home. These requirements are less stringent than traditional home improvement loans and make it easier for more home owners to participate. Interest paid is tax deductible.
0003 First Time Home Buyer’s Programs
Before you buy your first home, you should check you see if there are any special programs available in your community for first time home buyers. You may be lucky and find such a program that will fit your needs. Even if you’re only thinking about buying your first home, you should check out what’s offered in your area. Some programs will educate you on how to buy a home. In fact, here’s a short list of things you should look for in a first time home buyer’s program.
First, make sure the people offering the program have been in business in your community for a reasonable period of time. Some mortgage companies come and go and special offers aren’t all they are cracked up to be. Local financial institutions are a good place to start.
Second, Find out what the requirements are to take advantage of the program. The best first time home buyer programs will be designed to help low and moderate income families. They’ll offer reduced interest rates, lower down payments and substantially reduced closing costs.
Finally, see if the program offers an education segment. Ideally, you should have the opportunity to be informed on issues like income and credit requirements, down payments and closing costs, how to budget and save, how to shop for a home and how to purchase a home. If you select a home buyer’s program with all these ingredients, you’re sure to save money and make the whole process easier.
0004 Vehicle Loans
A vehicle loan is used for purchasing new or used cars, light trucks or motorcycles. The rates and terms vary depending on the year of the vehicle and the amount of the loan. Lending institutions typically loan up to 100 percent of the average book value or selling price, whichever is lower. Many institutions offer a fixed or variable rate loan. A variety of time frames are also offered – 24 months, 48 months, 60 months, or 72 months. Typically, the shorter the term, the lower the rate.
0005 Mortgage Loans
A mortgage loan is a loan for purchasing or refinancing a home. For purchases, it is common for the lender to finance up to 90 to 95 percent of the appraised value or selling price, whichever is less. The most common repayment periods are 15 years and 30 years. However, many lending institutions will allow the borrower to choose any term under 30 years. Mortgages can be sold on the secondary market. However, the borrower usually continues to make payments in correspondence with the original lending institution. A second mortgage is a mortgage in addition to the first mortgage. The loan process is much the same as the first mortgage. Second mortgages can be used for a variety of reasons. Most commonly they are used for home improvements, debt consolidation, RV’s, boats or to pay for a college education.
0006 Student Loans
Federal Stafford Loans (both subsidized and unsubsidized), Federal Supplemental Loans for Student (SLS), and Federal Parents Loans for Undergraduate Students (PLUS) are available from lending institutions to financially assist students pursuing higher educational needs.
The Federal Stafford Loan is based on your needs analysis. You must also be an Indiana resident or attending an Indiana school. You must be enrolled or accepted on at least a half-time basis at the educational institution approved by the U.S. Department of Education. For the first year of study, the maximum loan amount is $2,625.00. The interest rate is variable and is capped at nine percent. The government pays the interest while the student is still in school. All student loan programs have a maximum ten year term for repayment.
The Unsubsidized Federal Stafford Loan is available to students who may not qualify for a Subsidized Federal Stafford Loan of who qualify for less than the full annual amount. The loan limit and loan rate are the same but the student is responsible for paying all interest throughout the life of the loan. The Supplemental Loan for Students (SLS) is a loan program to cover any additional need above the maximum on the Stafford Loan. You may borrow up to $4,000.00. The interest rate is variable and capped at 11 percent.
The Federal Parent Loan for Undergraduate Students (PLUS) is also available in which there is no maximum loan amount where you take the cost of the attendance less any and all financial aids. The interest rate is variable and capped at ten percent.
0007 Business Loans
Credit is the lifeblood of American business. It helps the entrepreneur get started, obtain equipment, build inventory, develop new lines of merchandise or expand. Generally, loans are for purchasing new assets, paying off old debts and expenses, substituting debt for equity or paying for expenses to create new revenue. The following primary information may be needed by your bank to evaluate your loan request.
First, describe the type of business or service to be conducted. Explain the purpose of the loan with a written breakdown on use of loan proceeds. Be sure to complete a personal resume on each principle. When loans are made to closely held corporations, banks may require a pledge of personal assets and personal guaranty. List how much equity you plan to inject into the project along with collateral available to support the loan and an estimate of its value. Banks will usually require the value of collateral to be somewhat greater than the amount of the loan. One factor that will be considered is the liquidity of the collateral. For existing businesses, submit financial and interim statement including balance sheets and income statements for the last three years. Provide a projection of your sales, expenses and profit for at least one full year after you receive the loan. Lenders may also request a personal financial statement and tax returns on each owner or partner owning 20 percent of more of the business. With well-laid groundwork and careful planning, your business has a much greater chance of success.
0008 Interim Construction Loans
Interim Construction loans are loans that help you build your home. They provide the money to the builder and his subcontractors for their labor and materials while the home is being built. These loans are only for the period of time is takes to complete your home. Draws are made on the loan by the builder for the various stages of completion. During the building process, only interest payments are required. When completed, the interim construction is converted into a permanent mortgage loan, usually with a mortgage company.
Most interim construction lenders will require a “take-out” or commitment letter from the permanent mortgage company before the interim application can be approved. The commitment letter indicates the permanent mortgage company will pay off the interim construction loan when the home is finished. The interim construction loan can be made to the builder or the home-owner. If the loan is made to the home-owner, the interest that is paid is income tax deductible just like mortgage interest.
0009 Installment Loans
Installment loans are all-purpose loans used to finance such items as motor vehicles, boats, land or major appliances. Installment loans are also used for home improvements, debt consolidation and personal expenses.
Installment loans are one of the most popular ways to borrow. They provide you with a structured loan to be paid back in a specified time. Typically, new vehicle loans will run for a maximum repayment time up to five years. Older model vehicle loans and signature loans are financed for shorter periods of time. Lenders match maturity dates with the expected economic life of the asset being financed.
Under a fixed rate loan contract, you know exactly how much you will be paying each month, so payments can be budgeted in advance. Installment loans are usually simple interest loans so that you pay interest only on the outstanding balance. Installment loans are usually accompanied with a coupon book or payments can be automatically deducted from your checking account.
Typically under the installment loan contracts, you may repay the principal sum of the note in whole or in part at any time from time to time without any repayment penalty. In determining your credit risk, the lender will consider your ability to repay, by looking at your income, current debts, past credit history and the collateral, if any, that supports the loan.
0010 ARM and Fixed Rate Mortgage Loans
Mortgage loans are made at either a fixed rate for the entire term of the loan or an adjustable rate (ARM) whereby the interest rate is adjusted at fixed intervals. Fixed rate loans are available with repayment terms of ten to thirty years. The payment to principal and interest will never change during the life of the loan, as the rate is set at the time the loan is made. “ARM” (Adjustable Rate Mortgage) loans are available with repayment terms of thirty years. The payment can change at each predetermined interval to reflect the rise or fall of the interest rate. The amount the interest rate may change is limited to two percent at each anniversary date, and to six percent over the entire term of the loan. The adjustment periods are set at one, three or five year intervals. The interest rate is less than a fixed rate loan, with the lowest interest rate being the one year ARM. You may be able to qualify for a higher mortgage with an Adjustable Rate Mortgage.
0011 Commercial Loans
Commercial loans are loans made for business purposes. There are several different types of commercial loans: lines of credit to finance inventory or accounts receivable, capital equipment loans to purchase manufacturing equipment, and rolling stock loans to finance vehicle inventory. Commercial loans can also be made to purchase business real estate, or to expand and improve existing business property. Commercial loans can be used to support Letters of Credit for domestic or international purposes. Commercial loans can be made for virtually any legitimate business purpose.
In addition to traditional Commercial loans, U.S. Small Business Administration guaranteed loans are also available. These are known as SBA loans. There are several advantages to these government guaranteed loans for both the borrower and the lender. SBA loans can be made for most of the same purposes as traditional commercial loans.