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Dream Homes


Owning House: The one big dream of empty nesters, baby boomers, recently married beginning of career executives or for investment is that of owning house. But dream homes are held back by property prices repositioning every few months, fluctuating mortgage and interest rates or concept of house clashing with available resources. A safe way out of this dilemma is taking mortgage loan. Mortgage is basically a way to finance real estate deal and co-signed with bank or a loan company with property in question pledged to lender as collateral for loan debt. Failure to repay this loan gives bank or lending institution the right to sell house either at auction or as Real Estate Owned property. It is not a simple give and take affair as lender decides nature of loan on gross pre-tax yearly income, personal debts if any, relevant credit history of person taking loan, value of mortgage including final amount with interest and furnishing personal references from reputed persons.

Sometimes dream homes turn sour and to save oneself from ignominy of being rejected it is advisable to go through mortgage calculator to check whether one pre-qualifies for a mortgage. The criterion for selection is Gross pre-tax income, total monthly debts, the loan amount desired and period of time for loan repayment. Pre-qualification means that lender, whether private or institutional, will consider loan demand if conditions are met with. On pre-qualifying modalities need to be worked out as repayment is not limited to paying off principal amount that is comparatively easy with consolidation of assets. It is the continuing repayments with added interest rates that are the worrying features of home and mortgage loans. The loan amount will buy the house but if short on finances there will be situations when repairs have to carried out or cash needed for emergency situations or mortage loan interest rates goes up due to increased property tax bill. There are number of questions that need to be looked into before jumping on to mortgage band wagon.

SEEKING HELP: Mortgage loan advertisments and succes stories convince first time house buyer to connect with mortgage market. It is not as clear-cut as it appears and one needs to know about different mortgage terms to straighten misunderstandings and mistrusts between buyer and lender as buyer will only approach someone who is reliable and offers services within frame work of rules and regulations.

Whether a first time buyer or changing house, the first step is to find suitable and affordable house. Then scout around for mortgage loan and repayment terms that fit in budget. Mortgage loans can be researched at banks, firms and institutions through internet, newspapers and house shopper’s guides or through friends, acquaintances or business associates. Once this is done then next step is to identify type of mortgage loan required and if available the terms and conditions offered. Mortgage loans come as Traditional, Non-Traditional or Risky mortgages like piggyback loans, low and no-document loans. Some lenders offer mortgage loans that are backed by federal agency such as Federal Housing Administration or FHA loans or Department of Veterans Affairs (VA loans). Certain loans are not government backed and are referred to as Conventional loans. Then there are Insured mortgages with lower down payment requirements. This type of mortgage loan is restrictive as it is only available for houses or properties below specified price range.

The next step on ladder to ownership is associated with down payment required by lender. The monthly installment and interest rate depends on term and size of down payment as larger the down payment the lower the interest rate. Certain mortgage loans have interest rates that stay fixed and are referred to as Fixed-rate mortgages while in ARMs or adjustable rate mortgages, interest rate change. Mortgage loans can be combination of fixed and variable rates i.e. Convertible mortgages and finding difference is important as initial rate of an ARM is generally lower than rate available on fixed-rate mortgage and can change during lifetime of loan. Then there are Balloon Mortgages or Pledge Asset Loans; Reversible mortgages; Jumbo or Construction Loans; Conforming or Conventional Loans.

For first time loan taker it is complicated and instead of regretting later it helps to clarify different features from lender. Lenders have special programs for various categories for low income, first time homebuyers or veterans as type of loan taken affects chances to qualify for mortgage loan.

LOAN TYPES: Cost of anything is important and when it comes to purchasing an asset one needs to know future financial depreciation involved.

The total cost of mortgage consists of four main elements or PITI (Principal, Interest, Taxes and Insurance) and used by mortgage lenders to calculate affordability ratios. Principal is amount one borrows to be repaid over a period of time; Interest is cost that mortgage lenders levy for using their money during repayment schedule; Tax is property tax charged by local government vis-à-vis location and affects affordability of house and Insurance to replace value of loan in event of natural calamity or disaster. Majority lenders add property and insurance cost to mortgage payment known as escrow account and placed as depository account in bank. This monthly payment increases or decreases depending on changing taxes and insurance assessments. If mortgage does not have escrow account then insurance and property tax payment has to be made separately and proof submitted to lender.

There are other associated costs such as Private Mortgage Insurance (PMI) that is mortgage default insurance required for all conventional mortgage loans with less than 20 percent down payment. In this lender gets portion of outstanding balance of loan in event of payment default by homeowner.

PAYMENTS: Getting home loan sounds an easy way of inching closer to dream house but before going through procedure and falling into trap of loan frauds check out the pitfalls. For every reliable lender, appraiser and real estate professional there are predatory lenders to lead first-time purchasers, the elderly, minority groups, low income or damaged credit raters down the garden path. The Federal Housing Administration or FHA issued a list of dos and don’ts that include not signing on blank sales contract or loan document with unreliable or untrue information, check if cost or loan term differs from terms initially agreed upon or desist from signing form if buyer is made to understand that FHA insurance protects against property defects and loan frauds when in reality it does not. It helps to get genuine appraisal of purchased property, refrain from submitting false income figures to secure mortgage loans or falling into trap of taking extra loan without realizing that extra fee might be charged for non-existing or unnecessary products and services.

Before zeroing down on one mortgage lender or estate agent meet with several real estate agents and mortgage lenders to compare costs and services offered. With fluctuating mortgage rates one needs to be extra cautious in taking loans and scan entire document before signing. There is no reason in feeling apprehensive of investigations as investing in real estate is different from investing in jewelry or antiques. The lender or mortgage loan giver is a negotiator handling investments, insurance, estate planning and mortgage banking all in one and most important different from house seller. One sells dream homes while other the means and if unsure of terms and conditions then take legal advice before signing contracts, documents or making purchase.