Seek First To Understand!
Home buyers need to be wary about committing to a mortgage that could have them living beyond their means. While most individuals want to live in their dream home, I once read that the path to a dream home starts with the purchase of your first home.
With the surge in foreclosures, you'd think home buyers would be extremely wary about committing to a mortgage that could stretch them beyond their means. There is an estimates that more than 10 percent of borrowers still are "maxing out" on their loans, signing up for house payments that he considers too steep for their incomes.
In the late 1970s, people believed you shouldn't spend more than 25 to 30 percent of your income on housing and other debts. Today it's tougher than before to obtain a mortgage if you have severely tarnished credit. Assuming the borrower can get a loan at all, people tagged as "subprime" borrowers must pay especially high interest rates to compensate lenders for the extra risk. Indeed, many subprime lenders — and the investors behind them — have gone out of business recently, due to high default and foreclosure rates.
•Borrowers need to understand their limits and have a budget in mind when starting down the path of purchasing a home.
Before you begin visiting open houses, or agree to tour homes with a real estate agent, many reputable real estate professionals advise that borrowers should review their financial situation — ideally with a trusted accountant or financial adviser. Determine what you can afford before visiting For-Sale properties. There are still lenders that let people get in over their heads on mortgage payments — so long as the borrowers fit in with their standardized numerical guidelines.
•Seek advise and consultation services.
Just looking at your income, savings, and credit scores; On paper, some lenders and real estate agents may say you're "qualified" for a bigger mortgage than you can really handle. What is really needed is a "Pre-Approval" review where you have actually discussed your particular situation with a reputable lender. Once you've reviewed your financial situation, it's time to start searching for the lender with whom you'll gain mortgage pre-approval.
Seek referrals before choosing a lender and interview several before committing to a particular program. As with lenders who provided sub-prime loans, programs that many lenders offer today may not be available on the day you close. Always ask "if the program you recommend for my situation isn't available on the day of closing, what alternative do you suggest?" Before you settle on one, seek the names of at least three firms that have provided trustworthy service to friends or family members.
"There are still some predatory lenders out there — guys who will get you into a higher-rate mortgage than is warranted by your credit history."
Nearly everyone has some blemishes on their credit reports — either due to errors in the reporting process or because they made one or two late credit card payments. But minor blemishes shouldn't disqualify you from obtaining the best interest rate available when you buy a home.
•Seriously consider taking a traditional mortgage.
As has been widely reported, many of those now grappling with mortgage problems financed their homes with adjustable-rate mortgages, known as ARMs. Problematic loans typically were offered at introductory "teaser rates," giving the consumer a rock bottom rate at the outset. Yet soon they "reset" much higher — hoisting the payment higher than what the borrower can manage.
To prevent the kind of payment shock that occurs when an ARM suddenly resets, a professional lender and real estate professional would urge home buyers take a serious look at a time-honored alternative: the plain vanilla fixed-rate mortgage.
With the classic fixed-rate mortgage, you are guaranteed constant principle and interest payments through the whole term of the loan.
•Follow a conservative course when deciding on your mortgage term.
Fixed-rate mortgages are typically available with either a 15- or 30-year term. Though the monthly payments are higher, home buyers increasingly are attracted to the 15-year mortgage, which allows them to build equity more quickly because the principal melts away faster. However; there are ways to pay down the principle on a 30-year loan without being tied to the higher payments of a 15-year term and giving you the flexibility to manage your money that suits your immediate needs.
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Original article written by Ellen James Martin: Buyers still can get in mortgage trouble
Web Posted: 10/05/2007 04:09 PM CDT
San Antonio Express-News