Homeownership: a Way Through the Loan Amount Issue

By: Amanda Hash

When looking for finance, there is a problem that rises every time you need higher loan amounts. There are always credit limits that may restrict your ability to obtain the funds you need due to different reasons that may include bad credit, lack of collateral, income requirement, etc. However, if you are a homeowner and even if you do not use your property as collateral, you can bypass these limits at least for a fair amount.

That's why we say that homeownership is a way through the loan amount issue. Regardless of the fact of whether you will use your property to guarantee the loan or not, the lender will still be able to offer you higher amounts than the amounts he is able to offer tenants and non-homeowners. And this is mainly due to an important risk reduction.

Loan Amount and Loan Types

Loan amount restrictions apply differently to the varied loan types. For secured loans, the loan amount limit will depend on the available equity and market price of the property that is being used as collateral for the loan. This is due to the fact that the property is actually guaranteeing repayment for the loan up to the loan amount.

However, the loan amount limit on secured loans will also depend on the credit score and history of the applicant and his available income. Higher loan amounts represent a higher risk for the lender and thus, only if credit and income requirements are met with ease, the lender will define a high loan amount limit for any particular lender.

Loan Amount And Loan Terms

The repayment schedule and the interest rate will also affect the loan amount limit. But these variables will act differently according to the credit history of the applicant. Longer repayment programs tend to reduce the loan installments and thus make them more affordable so the risk of default is reduced.

The interest rate compensates the lender for the risk he is taking which in turn helps the lender to offer higher amounts. Yet, higher rates and higher amounts imply higher payments and more risk of default. Thus, only if income is good enough for affording such high monthly payments, high loan amounts will be granted.

Homeownership And Loan Amount

Homeownership, whether the property is used as collateral for the loan or not, reduces the risk involved for the lender in the financial product and thus provides the lender with the ability to offer more advantageous loan terms. This includes lower interest rates, longer repayment programs, lower monthly payments but most importantly, higher loan amounts.

If used as collateral the property directly guarantees repayment of the loan and thus, homeownership acts in a simple and straightforward way. However, on unsecured loans the results are similar. Though the property is not used as collateral it still guarantees repayment along with all the applicant's assets and thus, also reduces the risk of the transaction making it possible to offer higher loan amounts. As you can see, homeownership is beneficial both for the lender and the borrower in different ways.

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