Shopping For a Home Loan
Next to shopping for the home itself, shopping for the home loan can be just as cumbersome. For such a large amount of money, you want
to make sure you are getting the best deal possible by using a broker. Brokers have access to multiple banks and can find the best fit programs
that fit you rather than you having to fit the program. Try here
Loan Elements
There are four key elements of your home mortgage payment: the principle, interest, taxes, and insurance. The principle is the amount of money
that your are borrowing, less any down payment made. The interest is the cost of borrowing, expressed as a percentage of the total amount that
you borrow. The money for your property taxes are put into an escrow account until it is time to pay them. Home insurance is required by most
lenders. If your down payment was less than 20 percent, you will also be responsible for paying private mortgage insurance.
Types of Loans
There are several different kinds of home mortgages from which you can choose. The major factor to use in the decision of which home mortgage to
borrow is the length of time that you plan to be in your home. For example, if you plan to remain in your home for a long time, a fixed mortgage
is perhaps the best mortgage to choose.
The two major kinds of home mortgages are fixed-rate and adjustable-rate. As the name suggests, a fixed-rate mortgage, FRM, has an interest rate
that doesn’t change over the life of the loan. Your monthly mortgage payments will never change. FRMs are typically available for 15, 20, or 30
years. With an adjustable-rate mortgage, ARM, the interest rate varies depending on current market rates. In most cases, the initial interest
rate for an ARM is lower than that of the FRM. If you are interested in lower monthly payments for the first few years of your loan, an ARM is a
good choice.
A balloon mortgage is yet another type of home mortgage loan that you can obtain. This type of loan has a lower initial interest rate for five to
seven years. After that time, the entire balance of the loan is due, hence the term “balloon” mortgage. Balloon mortgages are best if you are
planning to sell your home, refinance it, or pay it off prior to the balloon payment due date.
Purchasing Homeowners Insurance
If you use a lender to
finance your home, you will be required to have homeowner’s insurance. You must provide the lender with proof of this ..... |
Choosing a Loan
Now that you know the components of your home mortgage and the types of home mortgages you can choose, how exactly will you make a final
decision? This will depend entirely upon your personal situation. As mentioned previously, the length of time you plan to live in the home is a
key factor. You should also consider your career and salary for the length of time you will have your home mortgage. Do you expect your salary to
remain the same or increase the length of your loan? Are you comfortable with the uncertainty an ARM can present as far as monthly home mortgage
payments or do you prefer a higher but stable payment for a flat 15 or 30 years?
Also consider the cost of the loan. What is your interest rate for the loan? Did you know that you can buy down your interest rate? Buying
down your interest rate is a great way to save money long term, to break even and save money usually takes 4-5 years to make back the money paid
as discount points. Depending on your market conditions you may be able to get free* discount points. To learn more call the expert
No cost or low cost mortgage
Another thing to consider is a no cost or low cost mortgage loan. Don't let these words confuse you otherwise you will feel
misled. No cost and low cost loans work by negotiating with the funding bank to pay all the associated fees with the loan. They
do this by increasing your interest rate and possibly adding on or increasing your prepayment penalty.
Prepayment Penalties
Prepayment penalties depending on your credit may be mandatory. If you have sub perfect credit the lender wants to "lock you in" for a
specified ammount of time for profitability and risk reasons. Because the home loan on your credit report would increase your credit scores
the bank doesn't want you to refinance say 6 months after buying the home and your credit scores go up, they don't want to lose the income
stream they have with you to another bank. You can request having no prepayment penalty but your interest rate will increase,
sometimes dramatically or the bank won't approve you without one due to your risk level.
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