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If you're buying real estate you need an agent
providing Accredited Buyer Representation! |
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ARTICLE: Buying a House or Refinancing Things to Know Before You Take the Plunge
Date Added: 2007-05-25
Buying a house can be very exciting but it can also be frustrating if you are not armed with the proper information before you start the process. There are mortgage lenders and mortgage brokers out there with no integrity and only care about what they will get out of the deal. So go in prepared, and show them that you are not ignorant. Also if you have already bought a home, do your research and find out what you need to know before you refinance your home.
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Your credit history is the most important thing when it comes to buying a home, buying a car, opening up a business, or just to get a credit card. It may very well be possible to obtain these without a high credit score but who wants to pay an interest rate that's through the roof? A good idea to get the credit score up is to pay all bills on time and to pay all credit lines down to 25-50% of the credit limit. The accounts on your credit report falls into these categories: Revolving, Installment, Open, Mortgage, Collection. Do your best to stay away from the latter. And try to spread your accounts out over these categories; give them a good balance. Of course, stay away from the collections. Your credit history is like the stock market. Don't put all your eggs in one basket and don't bite off more than you can chew. The goal is to shoot for a credit score in the high 600s and up.
After you have checked on your credit history, now it's time to find a lender that will meet all your needs. Some things to look for when finding a lender or mortgage broker: a)Check for proper licensing in the state business is to be performed for you, b) Check for any complaints against the lender or mortgage broker, c) Get referrals from other satisfied customers, and d) Check the company's credentials to see how long they have been in business. The latter does not always determine if the company will be a good one for you. I say, go with your gut.
The pre-qualification process can be very trying on your nerves. You have to gather up lots of documents such as your check stubs, past years W2s or tax returns, bank statements, etc. Some people practically rip the house apart trying to find these documents because some are just not that organized. Those documents are then used to determine your eligibility for a loan. There are a couple of easy formulas that are used to calculate income. The first thing that a lender or mortgage broker will do is pull your credit to determine the direction of the process. There are several ways to qualify a person for a loan in regards to income. Some people fall short of the income needed to qualify so lenders have put in place programs called non-income verification that allows a person's income to be stated high enough to cover the monthly housing and other expenses. This was a big factor in getting tons of people in houses during the housing boom.
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| During the pre-qualification process, you will have to face the daunting decision: Should I get a fixed rate or an adjustable rate? The fixed rate mortgages are good for people who don't plan on refinancing for a while and just want consistency in their mortgage payment. The adjustable rate is good for first time home buyers, people who don't plan to stay in their home for very long or plan to refinance soon, or the borrower just wants a lower payment. The fixed rate generally has a higher interest rate than an adjustable rate. The adjustable rate mortgage or ARM, allowed a lot of people to get into a house(still is till this day) when they probably wouldn't have qualified due to their debt ratio. Then of course, you may have heard of the Option ARM or "Pick-a-Payment". With this program, you start off with a extremely low interest rate called a "teaser rate", such as 1%, and it will steadily rise once every year over a max of five years. With this program, a person is paying less interest than what is due to the lender. The unpaid interest is added back into the principal of the loan. In other words, you may owe more at the end than when you started. That is referred to as negative amortization. The borrower has four payment options: 15-year, 30-year, Interest Only, or Minimum Payment. These loans are good for investors and for people who have fluctuating income.
A home equity loan is a loan where the homeowner uses the equity in their home as collateral. Equity loans are quite common and you may get tons of phone calls and solicitations in the mail about them. These loans are similar to second mortgages but you may end up with an interest rate that is better. These are usually marketed to people who need money for home improvements, vacations, college tuition, or just for emergency purposes. Home equity loans usually have lower interest rates than a standard second mortgage. The rates generally fluctuate with the market but some lenders are allowing you to convert the adjustable rate into a fixed rate.
The key to not getting totally lost in the mortgage shuffle is to get informed and keep up with the market. It may not be the most interesting thing to talk about over dinner but do it anyway. Go ahead and educate the kids while you're at it because soon enough they will be calling you on the phone as adults asking you to walk them through it all. That could take a fortnight times 12 so start early. So go ahead, take the plunge and go get that mortgage.
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| About the author: |
Don't Get Swindled: Get Smart
http://bemortgagesmart.com
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