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You can go to any
number of sources for a mortgage: banks, mortgage companies,
insurance companies, private investors, or even pension plans. How
you structure your mortgage, and what rate of interest you pay are
almost infinitely flexible as well. And no one is surprised if you
roll over your mortgage every few years; staying in one place for 30
years is a thing of the past in our increasingly mobile society.
Even paying off your
mortgage isn't regarded in the same light today. Most, if not all of
your mortgage interest payments are deductible, so hanging onto a
mortgage lowers your taxes.
The type of mortgage
you seek will depend on a number of factors. If you are a qualified
veteran of the armed forces, you may be able to obtain a 0% down
payment loan. Other loan programs require as little as 3% down, with
standard loans available with 5, 10, 20% or more down. Your agent
can often help you determine the best loan for you and will
recommend that you get "pre-approved" for a specified loan amount.
You can save yourself
thousands of dollars by taking the time to explore all the possible
mortgage plans for which you may qualify.
After you know how much
you can afford to pay, choosing a mortgage plan is the next stop.
There are dozens of loan possibilities out there. Following are just
a few of the options you can consider:
Usually carried for 30 years, its virtue is that the payment rate
always stays the same. When you budget, that unchanging sum is
something you can count on. Still the most popular type.
ARMs, as they're known, can save you quite a bit of money. You pay
less initially, often as much as two or three percent less than the
going mortgage rate. But later, if interest rates increase, so does
your payment. There are also ARMs that build increases into your
loan no matter what happens to mortgage rates. First-year payments
may be low, but they increase (or "balloon") regularly.
A 15-year payout can save you thousands of dollars in interest. The
drawback, of course, is that your monthly payments will be a lot
larger. Ask yourself if the tax benefits you lose will be really
FHA and VA Loans
You don't apply directly for Federal Housing Administration and
Veterans Administration government-backed loans. You go through your
lender, who will tell you if you qualify. Both types allow you very
low down payments or, in the case of VA loans, no down payment at
all. Your real estate agent can tell if you, and the property you
want to buy, fit the criteria.
Financing/Contract for Deed
Sometimes the property owner will be willing to take back all or
part of the mortgage. Generally, owner financing will be at a rate
higher than average, and it won't last for long - two or three years
is common. The balance of the note, known as a balloon, has to be
paid off in full when it comes due. If you get owner financing, try
for the longest possible term and be certain you can switch over to
a bank or mortgage lender.
With the variety and
complexity of loan packages available you might want to use a
mortgage professional. Mortgage professionals line up the kind of
financing that best fits your financial profile.
When you choose the
kind of loan you want and fill out an application for the lender,
expect to pay a few up-front fees. Sometimes the application fee
will include an appraisal fee and a credit report fee.
Because loan approval
is based in part on your credit history, try to make it look as good
as possible before the credit check. Lenders generally believe you
can afford only 36 percent of your income tied up in debt payments,
and that includes your housing payment. So, if your mortgage
insurance and tax payment is going to eat up 28 percent of your
gross income, that only leaves eight percent for other debt. Try to
get your credit card bills down, and put as much cash money as you
can come up with, even temporarily, in your bank accounts.
Make sure you can
contribute your part of the paper trail before you set out. Expect
to be asked for two or three years of income tax returns. If you own
your own business, or have income outside of your job, you'll
probably have to supply a financial statement.
Now, prepare to spend
from 2-4 weeks locking up your mortgage. It can seem like a long
process, but of course, it's going to be worth it the moment you
become a homeowner.