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Real Estate Loans should come first when Buying a Home

Real Estate Loans

Real Estate Loans

When preparing to buy a home, You really need to determine how much money you have available for down payment and closing costs because that will affect almost every aspect of buying a home, including qualifying for a real estate loan. Lack of real estate loan research is one of the pitfalls to avoid when buying a home.

Professionals like lenders and Realtors are important when making the most important investment you will ever make.  This is something that often gets overlooked by many that scour the newspapers for homes to buy not knowing what they can afford, what the interest rate will be, whether their credit will qualify and what houses are worth the asking price.

Mortgage Programs

If you only have enough available for a minimum down payment, your choices of loan program will be limited to only a few types of mortgages. If you have enough for the down payment, but need the lender or seller to cover all or part of your closing costs, this further limits your options.

Of course, if you have enough for a large down payment, then you have lots of choices.

Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment mortgages and all the varieties of each.

When a lender makes a decision about a mortgage application, they consider two basic factors your ability and your willingness to repay the loan. Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used.

The following are a few types of Real Estate Loans

Fixed-rate loans. They offer a monthly payment that is known and does not change; fixed-rate mortgage loans remain the most popular type. Most fixed-rate mortgages are for loan terms of 15 or 30-years. A 30-year loan has lower payments but a slightly higher interest rate.

Adjustable-rate loans: After an initial term, the interest rate on an adjustable-rate mortgage ARM loan is re-set periodically. This is to keep the rate in line with current market interest rates. The lender sets the interest rate by adding a margin to an index rate. Common indexes include: Cost of Funds Index and Treasury bill yields.

Convertible mortgage loans: These are ARM loans that allow you to convert to a fixed-rate loan at or before a specified time. The conversion privilege let’s you start off with a low variable rate, and then lock in when fixed rates drop low enough.

Balloon mortgage loans: These loans often have interest-only payments. In this case, you don’t amortize any loan principal and the entire loan amount is due at the end of the loan term. A balloon mortgage allows you to minimize your monthly payments until you refinance the loan.

Shop for Rates

A very important reason you need to have at least some idea of your down payment is for shopping for interest rates. Some loan programs charge a slightly higher interest rate for minimal down payments. Interest rates for different loan programs are not the same. To get the best advertised rates, you have to have a high credit score. However, knowing you are pre-approved for a certain purchase price, at a certain interest rate range, will help you from getting disappointed later and wasting time looking at homes that cost more than you can afford, at a higher rate than what is being advertised.

Writing Your Offer

Another reason you need to have a clue about your down payment is because it affects how you write your offer to purchase a home. Not only are you required to put your down payment information in the offer, but also different real estate loan programs have different rules, which also affect how you write your offer.

A mortgage is probably the biggest loan you’ll ever take out and it’s important to look at all of your options before you sign on the dotted line. When it comes to Real Estate Loans, be sure that you can afford it, it is in good mechanical shape, and that the terms of the mortgage are affordable for your income at the best rate you can get to make your future brighter with the home of your dreams.

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