Picking a mortgage is one of the most challenging decisions you are ever going to make. The mortgage will be with you for years and so will the company you have chosen. A mortgage payment will account for 1/3 of your income or more every month for 30 years. It is only natural that you would want to be able to find the best possible mortgage for you and your family.
Finding the right mortgage means that you will have to prepare and arm yourself with as much knowledge about the market as possible. You will need an understanding of the terms used in the lending business as well as familiarize yourself with the interest rates and how to calculate for yourself any possible payments before you actually sign on.
There are so many different plans out there that it will seem mind boggling at first. The first time homebuyer is the one who should tread carefully through this swamp. These are truly treacherous waters and if you are not careful you can get swallowed up in a contract that bleeds you dry.
One of the first things you look for is a flexible plan. Finances are unpredictable and therefor the more flexible your mortgage plan is the better you will be able to withstand the stress that the uncertainty of the economy might bring. A mortgage plan that gives you plenty of options works best. If the time comes and the payments are just out of reach you want the option to refinance at a lower interest available to you.
Along those same line you would like to be able to payout early if the opportunity presents itself, and do it without incurring a penalty. A plan with options allows you to rest easier knowing that when hard times do come, and they will, loosing your home will not be the only recourse.
Another thing that a lot of first time home buyers fail to do is to find out if the insurance is included in the payment. Mortgage plans can have a lot of benefits attached. It is up to you to ask about the possible benefits before you sign on. If the mortgage includes the homeowners insurance that is a big plus for you. It wills save you the hassle of having to seek out an agent and acquire an individual policy. Having to make a lot of different payments each month can prove to be quite inconvenient. It is much easier to budget for the one payment than for several large payments.
The low or no down payment lure is attractive to people who are seeking to purchase a home but it is often the worst thing they could do. Do not just listen to the hype. Investigate the offer to see if you will come out a winner. Most often these come with a catch of some sort and always in favor of the lender. No down payment is a way to say payment deferred. Eventually you will have to pay it, it is usually as an additional expense in the monthly mortgage payment and is taken over time. This means that part of the money you pay every month will go to interest and the down payment leaving very little if anything to be applied to the actual principal.
Types of Mortgages
Most of the loans offered today are in one of these two categories, fixed rate or adjustable rate. The loans are vastly different and are geared to different types of borrowers. Known in banking circles as a FRM or Fixed rate mortgage is a fancy way of saying that the interest rate will not change over time. For some this is a good thing and for others not so much. If the interest are very high at the time you purchase your home and they drop drastically in the next few years you cannot take advantage of this potential savings. This loan is best for those who will not be financially crippled by the higher mortgage payments. The term on these loans are 15-30 years and if you are lucky enough to get one locked in at a low rate it will be a good thing. The FRM is a double-edged sword in that it all depends on the rate at the time you sign on and how well or poorly the economic picture turns out in the future.
The adjustable rate mortgage or ARM is the opposite. This one changes with the flow of the economic picture. When rates go up your payments get adjusted and if they go down they get adjusted again. This is good for those who can deal with the constant change to their financial budget but if you are already struggling to make ends meet and the rate takes a sudden spike it could have devastating consequences. That has been the problem most recently and a lot of good folks have lost home they have been paying on for years, simply because the economy took a turn for the worst. The good thing about these is that they usually have a cap. That is to say a highest possible rate and a lowest possible rate. So when considering the loan you need to find out what that cap is and calculate your potential budget using the highest factor. Always play the worst case scenario and you will see if the loan will be a good fit for you.
The adjustable rate mortgage is one that works well for people who aren’t planning to stay in that home for longer than five years. This way they get out before the higher interest rates kick in. Now that we have a working knowledge of the types of mortgages it is equally important to find out as much as you can about the different types of loan options that are connected to these mortgages.
Finding Mortgage Companies
The business of getting a mortgage has become a mechanical process. Loans are not given to people but to the person with the right set of figures. It is one of the most impersonal acts you will attempt in your lifetime, it is also the most crucial. Just as the mortgage companies do care if you are a name you too should choose your mortgage company based on their numbers. Remember that a loan can be sold and you may have more than one loan service while paying on your loan. Loans are traded like commodities on the stock market.
Two great ways to find out who has the best deals is at http://www.lendingtree.com/ or http://www.zillow.com/, these offer you up to date information on what companies are offering the best rates and terms. Ther eare also some that you can shop without giving up too much personal information. Try http://www.mortgagemarvel.com/, or https://www.theeasyloansite.com/, you can enter in your basic information and shop different loan companies to compare rates.
The rates may not reflect what you end up with but you will get a general idea. The loan officer will have to factor in your credit score and debt ratio to give you and accurate rate. Mortgage lenders stick it to you one is with those high interest rates and the other is with the loan discount point. You should compare rates using the annual percentage rate and also the cost of points and any other fees that may be included.
Ignorance of how the mortgage sys tem really works means a lot of people get ripped off each year. With the rate at which we are seeing this happen it is a miracle that homes are still being bought. But they are and we can only arm ourselves with knowledge of how the pros rig the system to favor their interest.
Knowing how they rip you off will have you better prepared to deal with the situations when they come up. We are about to examine some of the most common ways the mortgage designers use to get the better of the borrower. Not only that but we will include what steps you can take to avoid being taken in.
When interest are in a state of flux, frankly speaking that is most of the time, it may be better for you to get a set rate. The fixed rate loan is a way of making certain that as the market changes you will not have to constantly reassess your finances. It is important that you get the interest rate locked in and in writing. Never accept a verbal arrangement on anything of this magnitude. You never know when you will need it. If you ever have to go to court this may make all of the difference.
The bad news is that even if you have it in them to put it in writing you are not out of the woods. There is a thing they do that has to do with missed placed paper work. This is generally a tactic they resort to when they want to delay the closing until the agreement runs out. Then you are stuck having to get the higher rate. The best fix for this is to get a lender that someone you know has had good dealings with. Never pick one at random form yellow pages. Even then you should still check the complaint record at the BBB.
How A Mortgage Really Works
In reality a mortgage is not a loan. It is what you give the lender for surety for the loan they allow you. This is the actual document that you sign for the lender giving them an interest in the property that you are using their money to purchase. This protects them, they have a lien on the property until you make that last payment. The home in all actuality belongs to the lender until you get that final payment in you are merely a person who is investing in this property in the hopes that nothing happens before you get it paid off.
The mortgage is an agreement between the two parties, you the borrower and the loan maker. The lien is then recorded at the courthouse or other entity to make it a matter of public record. The home although you live there and consider it yours cannot be deeded to anyone else until you actually hold the title in your hands. If for any reason you become delinquent in your payments the lien gives the mortgage holder every right to sell the property to recover their losses. This is the basis for foreclosure.
Not all mortgages are actually mortgages. In some states what you receive is a “deed of trust”. They are the same in a lot of ways yet there are some important differences. The Deed of Trust is a three party arrangement you, the lender and the titleholder. It is always best to use a neutral party for the trustee. This is someone who can remain impartial throughout the process. In some cases an attorney or insurance company will be the avenue of choice. The major difference in the two will be felt mainly if a foreclosure takes place. To learn more on this subject go to http://www.kosmix.com/topic/deed_of_trust, there you will find an indept comparison of how each of these will affect a homeowner.
Buying a home is the dream of most Americans. With the recent foreclosures and lending institution scandals it has become even more of a scary thought than normal. You can take the time to research and learn how to avoid getting ripped off or in over your head or you can rush in blindly and hope for the best. the smart money is on researching the companies before you settle in to doing any type of business with them. once you call a company to inquire about rates and terms, they will try to pressure you into a contract. This is your life and livelihood, do not succumb to pressure and fast talking pitches. If they cannot wait for you to get a clear understanding of the mortgage, including the fine print then they don’t want your business.