Negotiating the Home Financing maze to purchase your home.
Financing your home.
by George Bogosian
What types of loans are available? Home financing is similar to auto financing...you need to shop around. There are conventional loans, and government loans, Federal Housing Administration (FHA) loans. Many Veterans Administration (VA) loans and, Rural Housing & Community Development Service loans (RHCDS) require no down payment. FHA loans have income limits. Other loan programs are often available on a regional level. Many states support some form of loan program, such as first time home-buyers programs. Some of these loan limits and requirements will change geographically, so you need to check in your area for the specifics. Around 30% of lenders loans will be non-conventional loans and many of these loans have fewer requirements. So you see, many people qualify for these loans.
Lenders want you to use a limited amount of your income to go to your housing costs, which may include escrows for taxes, insurance, utilities, maintenance, and your principal and interest. Usually 28-33% of your income, depending on the category of loan, can be the percentage lenders limit you on your income to spend on housing and total debt. Some loans, like VA loans allow a higher percentage. Lenders don't run sales, but in a slow real estate market lenders are sometimes more flexible about loan requirements, also, during their slow period, usually the winter months there are fewer loans made. Loaning money is a sales business; you’re buying money. These are good times to be borrowing money.
The most important qualification factor on a loan application is credit.
No credit is better than poor credit! Using credit cards is one way to establish credit but a more effective method is taking out a small loan and repaying it on time or before it is due is a good way to begin a credit history. The lender simply wants to be sure that you can meet your financial obligations as agreed. No surprise there!
The lender will have the house appraised by one of their independent appraisers after you have a signed purchase and sales agreement and made formal application with your lender. Past appraisals will not do. This simply assures that the price you agreed to pay is in line with comparable houses in your area. It also safeguards you against paying too much for the house.
Let’s not forget private mortgage insurance, called PMI. The lender usually requires this if your down payment is small. It protects the lender against a foreclosure and pays the lenders costs of this action.
The lender does not require mortgage Life Insurance, but you may choose to purchase this coverage. Programs vary, but in essence the insurance pays off your mortgage should you die, and it leaves your family with no monthly house payments. Obviously, this is an additional cost but may well be worth its price. Ask your mortgage lender about the details. Compare prices with a local insurance company.
Having your fantasies about your dream home is fine…..
but keep things in perspective and understand current market values and what can you really afford to buy!! Don't forget….. additions and renovations to the house can be made in the future. If your finances are tight, do not burden yourself with a financial commitment that will make your life miserable for years. If you have the needed money for your home be sure you can afford the upkeep, repairs, painting, yard care, taxes, insurance and possible changes you might want or need.
Financial responsibility does not end with the purchase of the home, it begins.
Many people have bought the house of their dreams only to find that their yearly expenses are more than they care to spend. Carefully evaluate how the cost of home ownership will affect your life. There are many things to do with your money than spend it all in the home that you own. Home ownership has wonderful emotional and financial benefits. (most of the time) It can also be a burden, so be sure to find your balance, both financially and practically. We cannot overemphasize the importance of understanding your financial limits before you go shopping for a home, it will make the experience much more enjoyable and productive! Remember, house buying is both an emotional and financial investment. Understand your limits in both realms. Use the finance calculator or mortage calculator below to see your financial possibilities. There are various personal finance software programs available to help you understand your limiations....Intuit has one that I find useful.
1. Pre-qualify with your lender the amount you can borrow before you go house hunting.(what can I afford)
2. Which loan is appropriate for me?
3. Shop around for interest and terms. (you’re buying money)
4. Ask questions of the loan officer? (till you’re satisfied)
5. Be comfortable with your payments, don’t overbuy
Mortage calculator for you to use.
- Mortgage Calculator
Free Mortgage Calculator - Calculate your monthly/yearly mortgage payments. Includes a refinance calculator, mortgage comparison & affordability calculator.