Mortgage
MORTGAGE OPTIONS:
Unless you have enough money to pay for a house yourself, you’ll need a mortgage. A mortgage is a loan you take out to finance the purchase of your home. It is also a legal contract stating that you promise to make a monthly payment until your loan is paid off.
Today, there are hundreds of different programs to choose from, but don’t let that overwhelm you. Most loans are variations of a fixed-rate mortgage and adjustable-rate mortgage. Knowledge of these mortgage programs will help you to understand the majority of available loan options. You may qualify for a new loan without even selling your current home.
GETTING A MORTGAGE:
It is very important to research your mortgage company before dealing with them. Don’t be afraid to ask any questions you feel necessary and if anything strikes you as odd make sure you comment on it. Make sure you ask for references from satisfied customers. There are several ways to secure a mortgage. You can get one directly by working with a mortgage banker or you can go to the bank, credit union or savings and loan.
P.R. & M. agents have access to many banks which give us more loan options and get our clients the best rate for their mortgage.
Many home buyers choose to arrange financing before shopping for a home and most lenders will “pre-qualify” them for a certain amount. Pre-qualification helps buyers to focus on homes that fit your plans and budget. Nothing is more disheartening for buyers or sellers than a deal that fell through due to lack of financing.
FIXED-RATE MORTGAGE:
A fixed-rate mortgage keeps the same interest rate for the life of the loan. For most people, especially first time homebuyers, this is the best option because you pay the same monthly principle and interest rate.
A fixed-rate mortgage means the interest rate and the payments remain the same for the entire life of the loan (taxes, of course, may change.) Advantages include consistent principal and interest payments, making this loan a stable. In other words, your rate won’t change, so you don’t need to worry about market fluctuations.
Some disadvantages include a possibly higher cost. These loans are usually priced higher than an adjustable-rate mortgage. Keep in mind that, on average, most people move or refinance within seven years. If rate in the current market are high, you’re likely to get a better price with an adjustable-rate loan.
- 30 year fixed-rate mortgage offer consistent monthly payments for the entire 30 years you have the mortgage. So if the market is good, you can benefit from locking in a lower rate for the full term of the loan.
- 15 year fixed-rate mortgage provide consistent monthly payment for the 15 years you have the mortgage. By building equity even more quickly than with a 30 year loan, and paying less interest, you’ll save money in the long run. It’s an ideal option if you can handle the higher payments and if you’d like to have the loan pay off in a shorter period of time—for instance, if you plan to retire.
ADJUSTABLE-RATE MORTGAGE:
An adjustable-rate mortgage (ARM) is one that the interest rate changes over the life of the loan-according to the terms specified in advance. The interest rate fluctuates based on several money market indexes, which cause the cost of funds for lenders to vary. All ARM are amortized (paid down) over 30 years.
- The initial interest rate is usually lower than with a fixed-rate mortgage.
- The monthly repayment would also be lower.
- The interest rate may be adjusted (up or down) at predetermined times.
- The monthly payment will increase or decrease.
ARM are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you’ll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance with seven years.
Conversely, monthly payments could increase if monthly payments if interest rates go up. Keep in mind that ARM are the best for homeowners who aren’t planning on staying with a property for a long period. If you’re on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.
YOUR CREDIT HISTORY:
A credit report is used by lenders as one measure of the risk and a borrower’s likelihood to repay. There are numerous types of credit report issues that would cause a lender to reject your application for a loan, including: missed credit card payment(s), default on a prior loan, and bankruptcy. Other black marks on a credit report include any judgment (perhaps for non-payment of spousal or child support) or any collection activity.
If you feel that your credit reports is wrong, experts say it’s best to take it up with the organization or company claiming you owe them money. But if you’ve been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payment were an aberration.
You can order a copy of your own credit report by calling three major credit reporting agencies.
- Experian at (800) 311-4769
- Trans Union at (312) 408-1050
NEGATIVE CREDIT RATING:
There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual’s credit record for seven to ten years. Credit problems are the main reason why buyers are denied a loan. The first step to cleaning up your credit is to get a copy of your credit report to make sure that the negative credit information is indeed yours and accurate. Some states have mandatory timelines to respond to your inquiry or remove the blemish.
If your credit report is correct, take care of any outstanding delinquent obligations first. Try to negotiate with the collection company and paid them off which will improve your outstanding debt balance and your fico score on your credit.
THE ALL-CASH OFFER:
Though most buyers don’t buy a home with all cash, anyone considering such a move may be wondering how. Because all cash buyers sidestep the time-consuming loan qualification process, the deal can close very quickly. The all-cash buyer’s primary advantage is completely avoiding mortgage interest. Buyers also save money that would be spent on loan origination fees, required appraisal, some closing cost and various other charges by the lender.
At the same time, all-cash buyers should consider potential pitfalls of the transaction. Buyers who want to use the home as their primary residence lose out on many of the tax advantages available to homeowners with conventional loans.
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Mortgage
