Find the Home Loan that Fits Your Needs

Article From BuyAndSell.HouseLogic.com


By: G. M. Filisko


Published: February 10, 2010


Understand which mortgage loan is best for you so your budget is not stretched too thin.

It's easier to settle happily into your new home if you're confident you can afford it. That requires that you understand your mortgage financing options and choose the loan that best suits your income and ability to tolerate risk.

The basics of mortgage financing
The most important features of your mortgage loan are its term and interest rate. Mortgages typically come in 15-, 20-, 30- or 40-year lengths. The longer the term, the lower your monthly payment. However, the tradeoff for a lower payment is that the longer the life of your loan, the more interest you'll pay.



Mortgage interest rates generally come in two flavors: fixed and adjustable. A fixed rate allows you to lock in your interest rate for the entire mortgage term. That's attractive if you're risk-averse, on a fixed income, or when interest rates are low.

The risks and rewards of ARMs
An adjustable-rate mortgage does just what its name implies: Its interest rate adjusts at a future date listed in the loan documents. It moves up and down according to a particular financial market index, such as Treasury bills. A 3/1 ARM will have the same interest rate for three years and then adjust every year after that; likewise a 5/1 ARM remains unchanged until the five-year mark. Typically, ARMs include a cap on how much the interest rate can increase, such as 3% at each adjustment, or 5% over the life of the loan.



Why agree to such uncertainty? ARMs can be a good choice if you expect your income to grow significantly in the coming years. The interest rate on some-but not all-ARMs can even drop if the benchmark to which they're tied also dips. ARMs also often offer a lower interest rate than fixed-rate mortgages during the first few years of the mortgage, which means big savings for you-even if there's only a half-point difference.



But if rates go up, your ARM payment will jump dramatically, so before you choose an ARM, answer these questions:
•How much can my monthly payments increase at each adjustment?

•How soon and how often can increases occur?

•Can I afford the maximum increase permitted?

•Do I expect my income to increase or decrease?

•Am I paying down my loan balance each month, or is it staying the same or even increasing?

•Do I plan to own the home for longer than the initial low-interest-rate period, or do I plan to sell before the rate adjusts?

•Will I have to pay a penalty if I refinance into a lower-rate mortgage or sell my house?

•What's my goal in buying this property? Am I considering a riskier mortgage to buy a more expensive house than I can realistically afford?


Consider a government-backed mortgage loan
If you've saved less than the ideal downpayment of 20%, or your credit score isn't high enough for you to qualify for a fixed-rate or ARM with a conventional lender, consider a government-backed loan from the Federal Housing Administration or Department of Veterans Affairs.



FHA offers adjustable and fixed-rate loans at reduced interest rates and with as little as 3.5% down and VA offers no-money-down loans. FHA and VA also let you use cash gifts from family members.



Before you decide on any mortgage, remember that slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. To determine how much your monthly payment will be with various terms and loan amounts, try REALTOR.com's online mortgage calculators.

More from HouseLogic

Evaluate Your Adjustable Rate Mortgage

Show Your Support for FHA

Other web resources

How much home can you afford?

Why ask for an FHA loan?

G.M. Filisko is an attorney and award-winning writer who's opted for both fixed and adjustable-rate mortgages. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Reprinted from HouseLogic (houselogic.com) with permission of the NATIONAL ASSOCIATION OF REALTORS (R).Copyright 2010. All rights reserved.

7 Steps to Take Before You Buy a Home

Article From Houselogic.com

By: G. M. Filisko

Published: February 10, 2010

By doing your homework before you buy, you'll feel more content about your new home.

Most potential homebuyers are a smidge daunted by the fact that they're about to agree to a hefty mortgage that they'll be paying for the next few decades. The best way to relieve that anxiety is to be confident you're purchasing the best home at a price you can afford with the most favorable financing. These seven steps will help you make smart decisions about your biggest purchase.

1. DECIDE HOW MUCH HOME YOU CAN AFFORD
Generally, you can afford a home priced 2 to 3 times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children.

2. DEVELOP YOUR HOME WISH LIST
Be honest about which features you must have and which you'd like to have. Handicap accessibility for an aging parent or special needs child is a must. Granite countertops and stainless steel appliances are in the bonus category. Come up with your top-five must-haves and top-five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3. SELECT WHERE YOU WANT TO LIVE
Make a list of your top-five community priorities, such as commute time, schools, and recreational facilities. Ask your REALTOR to help you identify three to four target neighborhoods based on your priorities.

4. START SAVING
Have you saved enough money to qualify for a mortgage and cover your downpayment? Ideally, you should have 20% of the purchase price set aside for a downpayment, but some lenders allow as little as 5% down. A small downpayment preserves your savings for emergencies.

However, the lower your downpayment, the higher the loan amount you'll need to qualify for, and if you still qualify, the higher your monthly payment. Your downpayment size can also influence your interest rate and the type of loan you can get.

Finally, if your downpayment is less than 20%, you'll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and downpayment assistance programs for first-time buyers.

5. ASK ABOUT ALL THE COSTS BEFORE YOU SIGN
A downpayment is just one homebuying cost. Your REALTOR can tell you what other costs buyers commonly pay in your area-including home inspections, attorneys' fees, and transfer fees of 2% to 7% of the home price. Tally up the extras you'll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6. GET YOUR CREDIT IN ORDER
A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. Most require a minimum credit score of 620 for a home mortgage.

You're entitled to free copies of your credit reports annually from the major credit bureaus: Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn't up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

7. GET PREQUALIFIED
Meet with a lender to get a prequalification letter that says how much house you're qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you're self-employed, you'll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.

MORE FROM HOUSELOGIC
Learn how Fannie Mae and Freddie Mac mortgages can help you save on financing

Learn more about the costs of homeownership

OTHER WEB RESOURCES
Homebuyer counseling resources

Get a free credit report from each of the three credit reporting bureaus


G.M. Filisko is an attorney and award-winning writer who has thrice survived the homebuying process. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Reprinted from HouseLogic (houselogic.com) with permission of the NATIONAL ASSOCIATION OF REALTORS (R).Copyright 2010. All rights reserved.

The dance begins: Negotiation to buy a home

Provided by Coldwell Banker®

You've found the home of your dreams. So how do you snatch it for the price you're willing to pay? Making an offer is an art.

You could offend a seller with an unreasonably low price or reference out-of-date market information, says Bob Irwin, author of the book "Tips and Traps When Negotiating Real Estate."

Of course there is no one, surefire tactic, but here are some common tips for gaining the upper hand:

Learn about the seller's situation.
Having a clear understanding of the seller's big picture will help you determine how badly or quickly he or she needs to sell the home. That may indicate how much room exists to adjust your bid price, says Julie Reynolds, spokeswoman for Realtor.com.

Does the seller have a contingent offer on another home that depends on this deal? Are they selling to relocate for a job? Are they trying to avoid foreclosure? Is the family emotionally attached to the house?

A seller who owns the house without a mortgage may be able to accept a slightly lower price than an owner who has to pay off a hefty loan upon a sale.

Research nearby sales prices.
It's important to do your homework to find out how much comparable houses in the area are selling for and how many days they're on the market. The more recent the sale, the better the benchmark. There are a variety of websites that offer this information, including realtor.com, zillow.com, and trulia.com.

Survey the house.
Sure, it may look like the home you've always imagined you would grow old in, but be on the lookout for red flags that can lead to big problems down the road, such as black mold, cracked foundations or roof decay. You can ask the seller to price the cost of the repairs into the deal.

"At the end of the day, the house may not be worth it when you realize its true condition," Irwin said. "Know what you're buying."

Don't low-ball.
Don't insult the seller with a price that is far too low, especially if the house has just been listed for sale. You don't want to short-circuit negotiations from the get-go. Be realistic and offer a price below what they're asking but above what they would balk at.

Don't be desperate.
No matter how small the selection, you shouldn't decide that a particular house is the only one for you. By remaining detached you will be less likely to pay top dollar and will be in a better negotiating position.

Get pre-qualified.
Know what you can afford, and remember that you may have to put down a large percentage of the purchase price. A preapproval letter from a lender shows you are serious and able to come through on the deal.

Negotiate closing and escrow costs.
Closing costs include things like city and county property taxes, attorney fees, title and insurance. This is an area open to negotiation that can save you a lot of money, but can also feel like an endgame in chess. If the seller doesn't have an obligation to pay off their mortgage once the deal closes, they may be more likely to budge on this.

Request contingencies.
Ask for a reasonable period of time for a home inspection and title approval, as well as geological and pest reports. You may be able to use information from those reports to justify a lower price.
Meanwhile, find out if you are allowed a loan contingency in the contract that will protect you until the deal is closed.

"Buyers are often going into negotiations assuming that they'll be able to renegotiate based on what inspections will show," Irwin said. "It's a buying strategy that many people use, and the seller may even expect that."

Strike while the iron's hot.
Real estate is often highly competitive. Act quickly if the deal is good, or else someone else will. Visit many homes so that you'll recognize what you want when you see it. Even in a slow market, it's a bad idea to procrastinate.

Consider a fixer-upper.
If you find you're priced out of the market, you may be able to find a home in a good neighborhood that's in poor condition. If you're willing to put the sweat and a little more money into it, it could be worth your while.