What Every Buyer Needs To Know About Mortgages

When a home purchase is in the near future, potential buyers need to improve their mortgage knowledge. It is important to know what steps to take before applying for a loan, and it is also helpful to know what pitfalls to avoid during the process. Buyers must know how to manage a mortgage following a home purchase.

Credit is an important issue. Mortgages are major loans. For banks, there is a great deal of risk involved. Since the sub-prime mortgage crisis, all banks have been even more cautious about loaning money only to creditworthy individuals. Potential buyers should know what credit is, how scores work and how to build or improve their credit.

Buyers should know how much they can afford. Lenders are careful about evaluating each applicant’s financial status. They look at current debts, income and monthly living expenses. However, the maximum amount they are willing to loan may still be slightly higher than what some people can actually afford. It is important to make sure there is enough money every month to put into a savings account. Keep in mind that things can go wrong, and considerable amounts of money may be needed to replace items or pay for repairs. Buyers should understand how the ratio for debt to income is calculated, how ratios affect mortgages and how to calculate mortgage payments.

The first home purchase may be less expensive. For those who have never purchased a home, there are special mortgages available. While they may be the best options for some buyers, they are not optimal for everyone. Some special mortgages may come with lower interest rates, smaller fees and smaller down payment requirements. Buyers should know how these loans work and how the points system works.

A fixed rate is best for buying the perfect dream home. When buyers find a home they plan to live in for at least five years, a 30-year fixed rate is the best choice. However, buyers should understand how these mortgages work and how APRs work.

Buyers who can afford riskier mortgages still have options. Some of the more creative options in this category include negative amortization loans, interest only financing and adjustable rate mortgages. They may be best for people who are self employed or buyers who have specific plans for their mortgages. Since people can get into trouble with these loans if something goes wrong, it is important for buyers to know what they are doing before signing the documents for any type of risky mortgage.

Some people may want a second mortgage. This type of mortgage allows people who already own a home to borrow against the property’s value. Homeowners may gain access to a generous line of credit with a great interest rate. However, it is important for homeowners to understand this form of financing, the pitfalls of second mortgages and home equity loan tax deductions.

There are loans for people who cannot make a large down payment. It is still possible to get a mortgage without providing a down payment between 10 and 20 percent. There are only a few legitimate programs offering this option. Buyers should familiarize themselves with FHA loans, HUD homes and the Expanding American Homeownership Act.

Homeowners may have the option of refinancing. When interest rates drop and stay low for a while, homeowners who bought their properties when interest rates were higher may be able to save themselves thousands of dollars by refinancing. Lower rates and improved credit scores are two good reasons to refinance. Even a small reduction can add up over the life of a 30-year loan. Before taking this step, homeowners should know how much their properties are worth, how much they owe, the basics of refinancing and what pitfalls to avoid.

About Brian Hendricks

Brian Hendricks is the President of Fidelity Insurance Group. Brian started Fidelity in 2003 with 0 clients. Today Fidelity Insurance Group is a Premier Independent Insurance Agency in Florida with over 3,000 families and businesses insured. Brian currently serves on advisory boards for 2 of the largest property insurance companies in Florida. Knowlege, Integrity, and Committment are his and his agency's guiding principles.
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