Janis Peterson, GRI, ABR, CSP Realtor®
Philadelphia Main Line Homes and Real Estate
Montgomery, Delaware, and Chester Counties
If the idea of shopping for a new home mortgage makes you break out in a cold sweat. Take heart.
Understanding the process can make it a lot less worrisome.
To begin with, understand that the costs of a mortgage are negotiable. Fine-tuning your bargaining skills, and understanding your own housing goals could save you thousands of dollars.
To tackle this process, check with several lenders before you make your move. Decide how long you want to stay in your new home. And do your homework. Here are two of the most important steps:
First, determine what type of loan is best for you. There are several kinds of mortgages available. A 30-year or 15-year fixed rate mortgage is best if you're planning to live in your home for a long time. If you think you'll be in the house for a shorter-run (5-7 years), an adjustable rate mortgage (ARM) might be better.
With a fixed-rate loan, your monthly payment remains constant. With an ARM, it fluctuates, but the ARM can save you a great deal of money over the life of the loan, if you don't mind taking a higher risk.
There are other types of loans, a five- or seven-year balloon loan, for example, and "two-step" loans that combine the constancy of a fixed-rate mortgage with a lower interest rate.
Second, determine your ability to qualify for a loan before you jump into the negotiating ring. You can do this by answering three basic questions: What's the value of the home? Can you afford it? And, can you meet your mortgage payment and pay off your other debts, too?
A lender generally figures your ability to pay based on a "housing ratio," or the percentage of your income that you will spend on your home, and on a "debt ratio," your ability to meet your entire debt load.
As a rule, the "housing ratio" should fall between 26 to 33 percent of your gross monthly income if you are applying for a conventional loan. You can calculate your housing ratio by adding up the amount of your mortgage principal and interest, taxes, home owners insurance, mortgage insurance and other costs associated with the home such as homeowners' association fees, if they exist.
Next, figure your "debt ratio," by adding up all monthly debt payments, including your anticipated mortgage payment, your car loan, monthly utilities, phone bill, credit card payments, college payments or loans, if you have children in college, and other ongoing monthly payments.
If you're applying for a convention loan, the debt load figure should fall within or below 33 to 38 percent of your monthly gross income. Lenders vary on the exact percentage they'll accept. If your long-term debt is small and you are making a large down payment, your lender may accept a higher debt ratio.
Once you've determined that you'll qualify for a loan, you'll want to get quotes on costs from several lenders. Keep track of the loan as it's processed.
Interest rates change daily, so any delays can be costly.
"Real Service in Real Estate." For a personal consultation on buying or selling real estate, Janis Peterson, GRI, ABR, CSP Realtor® can be reached at (610) 642-3744, e-mail: firstname.lastname@example.org. Prudential Fox & Roach Realtors® is an independently owned and operated member of The Prudential Real Estate Affiliates, Inc.
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