Advicemortgages

The time has come to buy a house. Questions buzz around in your head like a swarm of angry bees: How much can I borrow? How much do I have to put down? How much will my payments be? Well, let me suggest starting with the How much can I borrow? question. I know you should never answer a question with a question, but in this case we need to ask a few more questions in order to figure out the answer to our first question.

There are many factors you need to take into consideration when purchasing a home. First and foremost, ask yourself what size monthly payment you can afford. When determining how large a mortgage you can afford, be sure to factor in all your current expenses such as car payments, credit card bills, student loans, utilities, and the like. You may also want to factor in how much you spend on things like entertainment, eating out, and traveling. You don’t want to add a mortgage payment and say goodbye to your social life. Instead, you want to make sure that you’re not overextending yourself financially and thus ensuring the survival of your social life.

At the present time, most lenders will allow for a whopping debt-to-income ratio of 45% – 50%. Your debt-to-income ratio is the sum of your mortgage payment and any other credit card or loan payments, divided by your monthly gross income. Lenders use this ratio to help determine your credit worthiness. So, all of your revolving debts along with your mortgage payment divided by your monthly gross income should not exceed the 36% – 45% debt-to-income ratio. So, heres a quick little formula to help you figure out how much you can afford to put toward your monthly house payment:

–Multiply your gross monthly income by 0.45
–Subtract your non-mortgage debt payments from the result
–What’s left is your allowable mortgage payment
So, if we have a couple with a combined monthly gross income of 5000 and they pay 700 a month toward two auto loans and one credit card, they would qualify for a monthly payment of 1550. Also, be aware that not all of your monthly housing payment goes toward your principal and interest. A portion must go toward homeowner’s insurance and property taxes. I mention this because on most mortgage calculators thatll you use, youll need to enter these figures to get an accurate idea of what your real monthly mortgage payment will look like.

Property taxes are typically a percentage of your home’s assessed value. To calculate property taxes, local jurisdictions generally multiply the tax rate by a home’s assessed value. For example, if you pay 0.5% in property taxes of the assessed value, a home assessed at 250,000 would have a yearly property tax bill of 1,250. In order to find out the tax rate, you will need to contact your county tax assessor, or a local mortgage broker or bank may be able to assist you. As for the homeowners insurance, your best bet is talking to a local broker or bank to get a general idea of what it is for your area. Mortgage calculators will ask you for a percentage rate sometimes and others will ask for a yearly figure. It can be confusing for a new buyer, so don’t be afraid to seek a little assistance.

Figuring out how much you can afford to put toward your monthly house payment is a start. Now, you want to know how much house you can afford. There are mortgage calculators galore that will help you do this, but, as I mentioned above, they will require you to enter real estate taxes, homeowners insurance, and interest rates. Some calculators will provide you with figures, but they arent necessarily correct, so I would suggest a little leg work. Once you know how much you can comfortably spend a month toward a home, and youve gathered your tax and insurance rates, you only need an idea of what kind of interest rate youll get (Oh, did I forget to mention that you can call your local bank or mortgage broker to get pre-qualified, and they usually dont charge anything?). Once you have an idea of what your interest rate may be, you can plug in all your numbers on any of the numerous mortgage calculators on the internet. Once you have a good idea of what you think you can afford, call a local bank or broker and get pre-qualified to see if youre in the ballpark, and soon youll be on your way to owning a home.

Bad Credit Home Purchase Loans Should You Purchase A Home?

Today, those with damaged credit have more opportunities to borrow to buy a house than they have had in the past. There are many lenders that specialize in what is often referred to as a bad credit home purchase loan. However, as with many things in life, just because you can, doesnt mean you should. Indeed, loan availability could be considered a small part of the decision of whether or not you should purchase a home at this time.

What You Can Do

To help you in deciding whether or not you should purchase a home, the first step should be to run the numbers to find out what type of mortgage rates you may be eligible for and how much it would cost you to buy now. Its better to do this before speaking with any lender offering bad credit purchase loans.

The first number youll explore is your credit rating, using information from one or more of the major credit reporting agencies. Among the best known is Trans Union, Equifax, and Experian. Then, youll need to consider the loan-to-value ratio, or the relationship between how much you want to borrow and the worth of the house. Your debt-to-income ratio, or how much your total debts are in comparison with your current income, is another factor that will influence the type and rate of loan that is available to you.

What You Should Do

You can use the numbers you collected above to determine what terms and rates may generally apply to your financial situation and, with the help of a mortgage calculator, make an estimate of what a loan for a given amount will cost you monthly. There are a variety of other factors, such as points and closing costs that will affect that number, but for initial decision making as to whether or not you should purchase a home at this point in time, it is useful.

There are many lenders willing to offer you a loan, even if your monthly mortgage payment surpasses the 30% of your income that is typically recommended. That does not make it a good idea. There are other expenses involved in home ownership that youll need to factor in, such as repairs and maintenance. Buying too soon could place an undue and unnecessary financial on your shoulders.

Consider and compare the advantages to waiting. Youll have time to shop for the best bad credit home purchase loan possible. Youll be able to save for a bigger down payment and continue to improve your credit rating. All of these actions may translate into better rates and terms, which will allow you to pay less in the end.

Traditionally, homebuyers could look to two forms of mortgages fixed rate and adjustable mortgages. While there are now many more options, this article takes a look at the adjustable rate mortgage.

What is an ARM Loan?

An adjustable rate mortgage [ARM] is a basic mortgage with one important exception. With an ARM, your interest rate will start low but typically move up throughout the link of the loan. The timing of the movements is dictated by the terms of the loan. The rate may be adjusted every month, but more typical periods are every six or twelve months. Most adjustable rate mortgages also have a cap on the amount the interest rate can be raised in a particular period.

ARM Yourself?

A homebuyer has to be very careful when selecting an adjustable rate mortgage. Buying a home necessarily involves budgeting out how much of a monthly mortgage rate you can afford to pay. With an ARM, you have to keep in mind that your monthly payment amount will go up if the interest rate does the same. While you may be able to afford the loan now, what happens if the rate jumps two percent over the next two years?

In the current real estate market, potential rate increases are a troubling issue. In areas where the real estate market is dramatically appreciating, homebuyers are using ARM loans to get into homes. Put another way, they are using ARM loans to get a mortgage payment they can afford without giving real consideration to rate increases in the future. Mortgage interest rates have been at historic lows for the last few years. What is going to happen to all of these people when rates rise? It could make the savings and loans crisis of the late 80s look like small potatoes.

If you are considering an adjustable rate mortgage, make sure you do the research. Find out how often the rates can increase and by how much. Try to determine whether you can afford payments if the rates go up significantly over the next few years. With Greenspan retiring, now is the time to be very careful when taking on mortgage debt.

For many borrowers, adjustable rate mortgages are an attractive means of qualifying for a home. Fewer borrowers realize the potential negative amortization problems these loans can create.

Adjustable Rate Mortgages

Adjustable rate mortgages are very popular with home buyers. The popularity arises from the fact the initial interest rate on such loans is typically much less than one finds with fixed rate loans. As a result, home owners can squeeze into homes that they might not otherwise be able to afford with fixed rate mortgages.

The potential risk with adjustable rate mortgages is well known. A borrower runs the risk the interest rates will increase over the years, resulting in financial hardship when month mortgage payment amounts go up. If the rates and payments go up to much, the borrower can run into serious problems trying to make payments and may even lose the home.

To overcome the fear of rising rates, many lenders use caps on rate increases to entice home owners. These caps essentially limit the amount the monthly payment can increase for any fixed time period. For many loans, the period is one year and the rate increase is one percentage point. While this makes borrowers feel more secure, there is one little thing lenders fail to point out.

Negative Amortization

On many adjustable rate mortgages, the caps apply only to the monthly payments due on the loan. The caps do not apply to the actual interest rate being charged on the loan. This situation leads to a financial disaster wherein you are making the monthly payments, but actually seeing the principal of your loan increase. This situation is known as negative amortization and should be avoided at all costs.

Negative amortization is best explained using good old credit cards for an example. If you have credit card debit, and everyone does, you know that making the minimum monthly payment may not make a dent in the total balance. In fact, it may be less than the interest charged for the month. This becomes apparent when you receive the next bill and your balance has increased! Welcome to the world of negative amortization.

On an adjustable mortgage, you need to read the fine print to full understand how any caps apply to your loan. Whatever you do, try to stay away from negative amortization whenever possible.