Selecting the Right Home Loan
When investing in real estate, it is important to know what the best loan program is in relation to
the market direction and your financial objectives. All of these are factors in selecting the right home loan. This is why we
believe it is a disservice to you to just quote rates. Without knowing
the complete picture you may end up like 83% of American
homeowners... with the most expensive loan on the market!
The
recent quarter percentage point interest rate increases by the Federal
Reserve could mean huge savings if you consolidate your home equity
loans with your mortgage payment now, while long term rates are still
at record lows. At the most recent FOMC meetings, these rates are
expected to increase further. However, a cut in the Fed Funds rate is
detrimental to your mortgage interest rate. Additionally, economists
fear the turnaround in the economy could negatively affect the bond
market... which in turn could cause interest rates to rise again.
The
financial markets are dynamic and quite volatile.
Technical and fundamental analysis, especially in regard to Bond markets, are critical to understanding how to
structure your loan and when to initiate your mortgage application.
Call 401-293-0631 or contact us via email today for a free consultation on how to get the right mortgage for you!
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Choosing
a Mortgage
How to buy a house?
Choosing
among the many houses that may be available is hard enough -- then you
need to make a choice from the myriad of mortgages that are offered in
today's market. Is it a good time for real estate investing? How to buy a house that fits your needs and the needs of your family? So many decisions! Selecting the right home loan can be difficult. Take heart, though, since although
there are literally hundreds of different mortgages available, they all
fall into only a few basic varieties. Some may fit perfectly into your
situation, others may be unwise or unattainable. By narrowing your choices,
the process of picking the right mortgage becomes much easier.
One
of your first decisions should be between a fixed rate (the interest rate
remains constant through the life of the mortgage) or an adjustable (the
interest rate is adjusted -- either up or down -- at specified times during
the mortgage term). Adjustable Rate Mortgages (Arms) will have an initial
interest rate lower than fixed rates but will adjust upward (unless rates
really fall!) usually after the first year. They may be a good choice
if you are sure that you will not own the home for an extended period
(more than 5-7 years) of time.
Advantages and Disadvantages of Fixed and ARM Mortgages |
Advantages -- Fixed |
Advantages -- ARM |
- Since you know what your payment will be for the life of the loan, you can budget more easily.
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- Lower initial interest rate and therefore lower monthly payment.
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- No possibility of an interest rate change making your mortgage payment suddenly unaffordable.
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- If interest rate declines, your payment will also decline.
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- No anxiety over interest rate fluctuations.
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- Easier to qualify for due to lower initial interest rate and payment amount.
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Disadvantages -- Fixed |
Disadvantages -- ARM |
- More income needed to qualify because of higher initial mortgage rate.
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- If interest rate increases, your payment will also increase.
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- If interest rates decrease appreciably, it will be necessary to refinance to get a lower payment.
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- A large increase in interest rates -- and payment -- could make your house unaffordable.
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Terms: 15, 20 or 30 years
You
probably want the shortest term mortgage that is comfortable
(and for which you qualify). The interest savings are enormous as
the term decreases. Always
make a comparison between a 15 year term payment and a 30 year term
payment. The difference is often surprisingly smaller than anticipated.
The savings over the term of the loan, however, can be substantial. For
example, comparing a 15 year term to a 30 year term, $ 100,000 mortgage
at an 8 1/2% fixed rate yields the following results.
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15 Year |
30 Year |
Principal and Interest Payment (per month) |
$ 985 |
$ 769 |
Total paid over term in P&I |
$ 177,300 |
$ 276,840 |
Total interest over term |
$ 77,300 |
$ 176,840 |
HINT:
If you don't qualify for a shorter term home loan try to add at least 1 additional payment per year -- this will take nearly 10 years off
a 30 year loan.
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Points or No Points
To pay or not to pay, that is the question
When selecting a home loan, a
large component of your mortgage decision has to do with one of the first
charges associated with your loan -- even before you make your first payment
-- the "points" attached to the mortgage. A point is 1% of the loan amount,
paid to the lender or the mortgage broker at closing (in cash). For more
information on paying (or not paying) points, see the article "Should
I Pay Points?" written by
Randy Johnson, author of the best-selling book on mortgages How
to Save Thousands of Dollars on Your Home Mortgage.
Mortgage Comparisons
Once
you have a general idea of the type of mortgage that best suits your
situation, the next step is to begin to make comparisons among the
lenders that are available. Weekend newspapers will often have the
rates of individual local lenders posted in their Real Estate section.
To get the specifics of each lender's rate and term, you can contact
the bank or mortgage company directly. Another source is a mortgage
broker in your area, who will often represent a number of sources of
mortgage funds and can assist you in your choice. Of course, we would like to serve as your RI mortgage lender or MA mortgage originator of choice!
Contact Us Today!
or
Apply Online Now!
A great way to compare several mortgages is to use our mortgage calculators. Easy, informative, private. You can print out a copy of a mortgage comparison chart to keep track of what is available for you here.
Credit Problems
There are options for those who have had credit problems and still want to own a home. See the section devoted to that topic.
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Common Loan Types: Conventional, FHA, VA and "No-Document"
Conventional: A "traditional" mortgage, not directly insured by the Federal
Government. Most conventional loans under $ 275,000 are administered
through Fannie Mae or Freddie Mac (private corporations but regulated
by the government). Those loans over that amount are designated "jumbo
loans" and are funded by the private investment market.
FHA:
Insured by (but not funded by) the Federal Housing Administration (FHA)
a division of the U.S. Department of Housing and Urban Development
(HUD), and designed for, in general, low- and middle-income borrowers
and many first-time buyers. There are, however, limits (which vary from
county to county) to the maximum loan amount. On January 1, 2000 HUD
began insuring home mortgage loans of up to $ 121,296 in communities
where housing costs are relatively low, and loans ranging up to $
219,849 in communities where housing costs are relatively high. FHA
loans have somewhat more relaxed qualifying standards and ratios than
conventional loans and have the availability of both 15 and 30 year
fixed as well as 1 year adjustable mortgages.
VA:
For those qualified by military service, the Veterans Administration(VA) insures (but does not fund) 15 and 30 year fixed as well as 1 year
adjustable mortgages with lower down payment requirements (as low as 0
down) and somewhat more lenient qualifying ratios.
No-Document ("No-doc) Loans: No-doc
mortgages are generally a wise choice for self-employed people, those
who do not wish to verify their income, and those with a brief or
blemished credit history, or no credit. The benefits of a no-doc
mortgage include a shorter application process since you are not
required to provide income, employment or asset documentation, as well
as a streamlined approval process because there is little subsequent
verification. However, no doc mortgages generally will be at slightly
higher interest rates and are offered by fewer lenders. |
