In the past, it used to be such that, borrowing money for the purpose of renovating your kitchen or to add a second story to your house or any other home improvement related monetary support, you might have needed to go to a bank, apply for it and hope that it gets approved. But now, you have a lot more options to consider.

You have mortgage brokers, who can offer you more than 200 different loan programs. And these brokers are merely just one of the many lenders you can think about to give you a loan to solve the situation. This is possible even when your credit history is not that good. This would also mean that you are capable of obtaining more money than you need for the project! With lots of plans and money lenders available to give this sum to you, you have to wisely consider first how much that is you need and what kind of lending plan suits you the best.

Loan to value ratios

To find out the loan amount, lenders tend to use something called the loan to value ratios. This is a percentage of the appraisal cost of your house. Usually they set a limit to 80% of this value or they cap it off at around $100,000 to $125,000. Then the lenders would minus off the mortgage value off the amount so that you can reach at the point which is the maximum amount you can borrow. Let’s say your balance is $60 000, then the largest loan you would be able to obtain is $40 000.

In the case that you have good credit rating, then your lender might consider lending you more than 80% of your loan to value ratio of your property. If your credit history is very poor then this 80% might go down to even 60 or 70%. Some lenders even promise you 100% of the loan to value ratio but then the interest rates and other fees would also increase tremendously when this happens and it might not be worthwhile unless you really need the money.

Your basic income

If you have high expenses to be made, then a high income might not mean that you would end up with a high amount of loan. Lenders usually follow a few rules to minimize their risks in lending out money. Firstly, your house payment and other debt values that you are holding on to, should be less than 36% of your total gross monthly income.

Next, your house payment itself which includes the principal amount with the interest, other taxes and insurance, should be less than 28% of your gross monthly income. The maximum debt to income ratio goes up to 42% on having second mortgages. Some lenders tend to go higher, but as said before, this would mean higher fees and ridiculous interest rates which might be hard to handle later on. This way your monthly payment gets very high as well. But a debt to income ratio of 38% is probably one of the highest you should be able to consider to carry.

The loan to value ratio also decides how much you can borrow and how your debt to income ratios would device on the monthly payment that you qualify for. With these two restrictions, the biggest points you can play around with are interest rates and the duration of loan.

Interest rates

The less interest you pay, the more loans you are able to pay off. There is another term called adjustable rate mortgage, which is the one way you can let to allow reducing the rates. This can be done at least temporarily. Lenders cannot be fixed with one rate for over a span of a few decades, so these adjustable rate mortgages start at a low rate however they can be changed at different points of time, like 6 months, 12 months and 24 months and so on. Many of these have yearly restrictions on increases and a limit on how high the rates can get to. If your rates go up quickly then it would be time for you to keep a watchful eye as then your payments will be more expensive as well.

Loan terms

The longer your loan term, the less your monthly due is going to be, however this comes with a total higher interest rate. This is why you will pay less from a 15 year loan rather than from a 30 year loan. If you can afford to have more expensive monthly payments then go for it as you are able to cut a lot of cost in the long run.

Points

Each point refers to a direct cost that is equivalent to 1 percent of the total loan amount. Points are actually interest values paid in advance and they can help you reduce monthly payments. If your credit value is less than whole, then you might need to pay points just to get a loan.

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