Friday, October 2, 2009

How to Bank : Before You Get a Mortgage

If you're considering a home purchase in the near future - or within a few years - you should brush up on your mortgage knowledge. Learn what to do before applying for a mortgage, what to watch for during the process, and how to use a mortgage after you've bought your home.

Your Credit is Crucial

A mortgage is a big deal. The bank risks a lot of money, and they have been increasingly cautious since the subprime mortgage debacle. To qualify for a mortgage, good credit is essential.

How Much Home Can You Afford?

Mortgage lenders want to make sure you don't borrow too much. They look at how much your mortgage payments are relative to your income, ensuring you have the ability to pay. Run your own mortgage calculations to understand what you can afford.

First Time Home Buyers

If you're a first-time home buyer, pay attention. You may qualify for a special mortgage. Sometimes these are extremely valuable, and sometimes they're not. Make sure you are familiar with these programs and and restrictions on these mortgages.

If You’ve Found Your Dream Home

A 30-year fixed rate mortgage is generally the safest and best bet, especially if you expect to live in your house for more than 5 years or so. It's easier to understand and pick apart a fixed rate mortgage.

If You Can Afford a Riskier Mortgage

There are a wide variety of mortgage options out there. You may find that some of the more creative ones (like interest only, negative amortization, and adjustable rate mortgages) work best for you. These mortgages might work for self-employed individuals with unpredictable (but sufficient) income, real estate investors, and buyers with a specific plan regarding their use mortgage. However, you can also find yourself in trouble if you don’t know the risks.

If You’re Considering a Second Mortgage

A second mortgage allows you to borrow against the value of your home. You can get access to a large line of credit with an attractive rate.

If You Have Little Money for a Down Payment

It's possible to get a mortgage without a 10%-20% down payment. Even today, people get a mortgage with no money down. There are a few legitimate programs allowing you to get a mortgage with very little down.

Refinancing a Mortgage

There may come a time when you can get a better mortgage. Perhaps mortgage rates have changed, or your credit improved. Refinancing a mortgage is a powerful move when done for the right reasons.

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