If you don’t already know it, the real estate market has changed in the last couple of years and the days of easy home mortgages are gone. So if you are in the market for a home mortgage, it’s time to start doing your homework.
When house prices were steadily rising just a few short months ago, it was easy to get mortgage money. But now that things have been cooling off and the steady increase in prices has virtually come to a halt, banks and mortgage lending institutions have made borrowing more difficult.
Perhaps most important, interest rates have been rising slowly for a number of months. This may not seem like a big deal if you are new to the home buying market. But on a large home mortgage even a small interest rate increase can make a very big difference to your payment.
In fact the interest rate of a home mortgage is usually what determines how much you can borrow. That means it is the interest rate that often dictates how much you can spend on a home. The reason is simple. When you apply for a home mortgage the lender determines what monthly paymentyou can afford. And since a large part of each payment is simply interest, a higher interest rate could easily put the payment out of reach.
**Your home mortgage advisor is important**
Whatever you do, don’t start making home mortgage decisions until you hook up with someone who has a lot of experience in the business. Find an advisor who has intimate knowledge of current real estate and home mortgage conditions and has access to many alternatives.
Your regular banker is often not your best choice. Banks typically recommend their own products and they are not very interested in suggesting other products outside of their own offerings, even if they are a better deal for you.
Think about it this way – if your credit rating is good and you have a good steady income there are lots of lenders out there eager to give you a home mortgage. So you can probably get a better deal than the one your bank is offering. On the other hand, if you don’t have a particularly good credit rating or have cash flow problems you may need some creative suggestions. But your bank is not likely to give them to you. They want you to follow their rules and mee their requirements.
In other words, a bank is fine if you don’t care about getting a better deal. However, if you want lower cost or more flexible alternatives or you need creative suggestions you’re better to go somewhere other than your bank.
The altenative is to find a home mortgage advisor who knows the market inside out and who has access to many different solutions from many different sources.
**Good news for home buyers**
Even in these times of tighter credit there are ways for people to get a good rate on a home mortgage. Often these good rates involve various government backed loans such as FHA loans. These loans allow people with even horrible credit to borrow as much as 97 percent of the value of their home – as long as they have the necessary income to make regular payments.
Home mortgages like these make home ownership possible for many people who might not otherwise qualify. So they are very good deals for many people. But many traditional lenders will not recommend them because there is not enough profit in it for them. Some traditional lenders are not even aware these alternatives exist.
In fact many mortgage brokers won’t recommend these loans either because they take extra work. However, from your point of view it is really worth finding a mortgage broker who will find the best deal for you. It could save you literally thousands of dollars over the life of your mortgage, and it could make an otherwise impossible mortgage a reality.
**An ARM can be a good short term solution**
Another mortgage possibility is called the “option adustable rate loan” – commonly referred to as an ARM. Many people took advantage of this approach in the most recent real estate boom. If you qualify you could pay as little as 1% interest against a “real” rate of about 7.25%. To qualify you need a very good credit rating and good prospects for the future.
But be careful with plans like this. The lending institution will add the unpaid interest to the principal of your loan, so the amount you owe actually goes up over time. That means that eventually you will have to start making payments against the increased principal amount. So your payments will actually be higher than they otherwise would have been. You could end up with payments that are more than you can afford to pay.
What this approach offers is the opportunity for a borrower to make drastically reduced payments for a short period of time. Its most common use is for people who have short term cash flow problems, or when a borrower sees his or her financial situation improving in a year or two.
**The right mortgage makes a difference**
While it is becoming more difficult to qualify for a home mortgage, and more expensive to afford one, there are still money saving deals available from many different sources. But you have to know how to find those sources, and that’s why it is so important to deal with an experienced professional advisor you can trust. Look for someone who has in-depth knowledge of the current home mortgage situation and who is experienced in dealing with situations like yours.
The best advisor is a broker who has hundreds of lenders to draw on, so almost everyone can get what they are looking for.