Real Estate Mortgage Information
The loan process is one of the most important components when buying a home. Not only do you want to have an honest, reputable lender working with you, but you want to have a loan that meets the needs of your specific situation. If you are not sure who you should go to for a loan, your real estate agent can often recommend a few people she trusts. Remember, real estate agents are often not experts when it comes to which loan is right for you so make sure to refer to your lender when it comes to mortgages. The information on this page is just some information to get you familiar with the process; check with a lender if you have further questions.
Once you decide to purchase a home, the one important thing you have to think about is how you are going to finance it. Here are some questions to ask yourself when deciding what type of financing is right for you:
How long are you planning to live in your home? Short term? Long term?How much money, if any would you like to apply towards your down payment at closing?
Have you looked at your credit report? Do you know your credit score?
What is the most you want to pay towards a mortgage each month?
Do you have any outstanding debts or school loans?
Some of the questions above may help guide you in the right direction. For example, if you are investor and plan to use the property as a rental or are going to sell it in less than a year than an interest only loan may be right for you. An interest only loan may also be a good choice for someone who needs to pay off credit cards or school loans that have a high interest rate. If you are planning on living in the home less than 5 years than an Adjustable Rate Mortgage (ARM) may work better for you than a 30 year fixed loan. If you do not have money to put towards a down payment than an 80/20 loan is a way to finance the home. With an 80/20 loan, you have two mortgage payments and the second mortgage is usually at a higher interest rate.
Subprime loans are described as loans that have been created for buyers with less than perfect credit and to assist people to buy a home that normally would not be able to do so. Unfortunately, due partly to unlawful lending practices; many of these loans have defaulted causing the amount of homes in foreclosure to rise. For example, some homeowners had 3-year ARMS that reset and caused the interest rate on their loan to go up which in turn caused their mortgage payment to go up by hundreds of dollars. Many of these people could not afford a higher mortgage payment and have gone into foreclosure. Now regulations have changed and become stricter to protect not only the buyer but the lender as well. What does this mean for you? Due to tighter regulations, it not only may be more difficult for some people to get subprime loans but some people who were able to get them before may no longer be able to.
If you decide to get an interest only loan, ARM, or Graduated Payment Mortgage (GPM), it is pertinent to understand the pros and cons of these types of loans. Although, in the short term they may be a good option, in the long term, the possibility of your interest rate adjusting or gradually higher mortgage payments can become financially straining if you are not wise. Different loans impact how much of the principal you pay off each month on the home and how much more money you will pay at the end of the loan in addition to the purchase price of the home (i.e. higher interest rate).
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| 2008 Patricia Beck, Realtor, Colorado Springs Real Estate |
