Real Estate FAQs: Should I Avoid an Adjustable Rate Mortgage?

Financing Your Home Purchase

 

Mortgage Info

Q:  Should I Avoid an Adjustable Rate Mortgage?

A:  Because adjustable rate mortgages, or ARMs, fluctuate with the market, they offer less stability than fixed-rate loans.  If an ARM is adjusted upward, monthly payments will increase, and for a lot of people that can be too big a risk to take.  On the other hand, should rates drop dramatically, homeowners can reap the benefits of lower rates without refinancing, thereby saving thousands of dollars.

Lenders first introduced ARMs in the 1980s when interest rates soared into the double digits, forcing many people out of the home buying market.  They tied the rate to a variable national index, such as U.S. Treasury bills.

Today, many first-time buyers who have difficulty qualifying for a home loan, still settle for adjustable rate loans because the initial, “teaser” interest rate of the mortgage is normally two or three points lower than a fixed rate loan.  ARMs are particularly attractive if you plan to be in your home a short time.  They tend to adjust yearly or every three years, usually within certain limits, or caps, that prohibit the interest rate from shooting up too high.  Make sure terms such as these are spelled out in any ARM agreement you choose.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2014. All rights reserved.

The Mortgage Professor: Can you Afford that House?

By Jack Guttentag

(MCT)–The house purchase season is now in full swing, and many would-be purchasers are wondering whether or not they can afford the price quoted on the house they would like to buy. Alternatively, they may not have started their house shopping and may be wondering what price range they should be exploring.

The availability of mortgage financing is obviously a critical feature of the affordability equation, and it is quite different today than when I addressed the issue before the financial crisis. Interest rates are lower for borrowers with good credentials, which may increase the amounts they can afford to pay. But rates are not necessarily lower for borrowers with less-than-stellar credentials, and more borrowers today are unable to qualify at all. In particular, the income used to qualify would-be purchasers today is not the income they believe they have but the income that they can document, which can be much lower.

Mortgage affordability must be calculated three times using three different rules. I call these the income rule, the debt rule and the cash rule. The final affordability figure is the lowest of the three.

When affordability is measured on the back of an envelope, which real estate brokers often do, usually it is based on the income rule alone, ignoring the other two. This can result in error.

The income rule says that the borrower’s monthly housing expense, which is the sum of the mortgage payment, property taxes and homeowner insurance premium, cannot exceed a percentage of the borrower’s income specified by the lender. If this maximum is 28 percent, for example, and John Smith’s documentable income is $4,000, monthly housing expense cannot exceed $1,120. If taxes and insurance are $200, the maximum mortgage payment is $920. At 4.5 percent and 30 years, this payment will support a loan of $181,572. Assuming a 5 percent down payment, this implies a sale price of $191,128. This is the maximum sale price for Smith using the income rule.

The debt rule says that the borrower’s total housing expense, which is the sum of the monthly housing expense plus monthly payments on existing debt, cannot exceed a percentage of the borrower’s income specified by the lender. If this maximum is 36 percent, for example, the total housing expense for Smith cannot exceed $1,440. If taxes and insurance are $200 while existing debt service is $240, the maximum mortgage payment is $1,000. At 4.5 percent and 30 years, this payment will support a loan of $197,361. Assuming a 5 percent down payment, this implies a sale price of $207,749. This is the maximum sale price for Smith using the debt rule.

The required cash rule says that the borrower must have cash sufficient to meet the down payment requirement plus other settlement costs. If Smith has $15,000 and the sum of the down payment requirement and other settlement costs are 10 percent of sale price, then the maximum sale price using the cash rule is $150,000. Since this is the lowest of the three maximums, it is the affordability estimate for Smith.

When the income rule sets the limit on the maximum sale price, the borrower is said to be income-constrained. Affordability of an income-constrained borrower can be raised by an increase in the maximum monthly housing expense, or by access to additional income — by sending a spouse out to work, for example.

When the debt rule sets the limit on the maximum sale price, the borrower is said to be debt-constrained. The affordability of a debt-constrained borrower (but not that of a cash-constrained or income-constrained borrower) can be increased by repaying debt.

When the cash rule sets the limit on the maximum sale price, the borrower is said to be cash-constrained. Affordability of a cash-constrained borrower can be raised by a reduction in the down payment requirement, a reduction in settlement costs, or access to an additional source of cash — a parent, for example.

Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania.

©2013 Jack Guttentag

Distributed by MCT Information Services.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2014. All rights reserved.

New Opportunities Open Up for First-Time Homebuyers

In the coming year, more than 1.5 million consumers will purchase their first home. How do they do it — and how can you be one of them?

“First-timers now represent nearly 30 percent of all existing home purchasers,” said Ray Brousseau, executive vice president of a nationwide lender. “That’s a big percentage, but it could be a lot higher because there are many ways first-time purchasers can finance with little down and little hassle.”

Many of these buyers are able to afford a new home because they know that the mortgage marketplace has two separate ways to help them: First, there are traditional loan options. Second, there are more than 1,500 mortgage assistance plans for buyers purchasing a first home.

No Need For 20 Percent Down

The big barrier for many first-time buyers is cash. It takes cash for a down payment, and it takes cash to close. Lenders are generally looking for buyers with 20 percent down, but given that the typical home sells for more than $200,000, there are a lot of first-time homebuyers who have not accumulated the $40,000 or more that lenders prefer.

The good news: There are many ways around the 20 percent requirement with traditional loan options.

“It doesn’t take a lot of up-front cash to buy a home today,” said Brousseau. “FHA and conventional financing are all available with little down, while VA borrowers can qualify for mortgages that require no down payment.”

The way such programs work is that they substitute insurance for the 20 percent down that lenders would otherwise want:

• Conventional loans are available with as little as 3 percent down plus what is called “private mortgage insurance” or PMI.

• FHA mortgages require an up-front mortgage insurance premium (MIP), plus an annual MIP based on the outstanding loan balance. Mortgages backed by the FHA are available nationwide and typically require just 3.5 percent down.

• VA financing is available for those with qualifying service, such as military personnel, as well as officers in the Public Health Service and the National Oceanic and Atmospheric Administration (NOAA). VA loans are available with nothing down. There is an up-front “guarantee” fee, but no annual insurance cost.

“Instead of $40,000 for a down payment, many borrowers can get a $200,000 loan with $6,000 or $7,000 down, or even nothing down if VA-qualified,” Brousseau said. “That means qualified first-time homebuyers can buy a house today instead of waiting years to save 20 percent down.”

Mortgage Assistance Plans

According to DownPaymentResource.com, there are more than 1,500 assistance plans administered by more than 1,000 agencies nationwide for would-be buyers, many aimed specifically at first-time purchasers.

In looking at these programs it’s important to understand what the term “first-time buyer” means. It typically does not mean someone who has never owned a home; instead the usual definition for program qualification purposes is someone who has not had title to a home during the past three years.

This definition is important because it provides a way for people to re-enter the housing marketplace. For instance, suppose the Smiths owned a home and sold it to move to a job in a new community. Three years later they are “first-time” purchasers under the guidelines used by most assistance plans.

“Another important point about mortgage assistance programs is that many are specifically designed to encourage local home purchases by public-sector employees such as teachers, police, firefighters, nurses, and corrections workers,” said Brousseau. “There are millions of people who qualify for such assistance.”

The benefits available through mortgage assistance plans vary. For instance, borrowers may be able to get financing at below-market interest rates. Down payment grants may be available, essentially meaning that little or nothing down will be required. Another approach includes programs that offer tax credits.

Mortgage interest is generally deductible, but a “tax credit” is arguably more valuable. With what are called “mortgage credit certificates” or MCCs, borrowers can deduct directly from their actual tax bill. For instance, if you have $8,000 in mortgage interest you might be able to directly reduce your taxes by $1,600 while the remaining $6,400 can be treated as an itemized deduction.

“Given low interest rates and a firming housing sector, this is a terrific time to consider entering the real estate market,” said Brousseau. “With today’s financing choices, many buyers can own their own home a lot quicker than they might have thought.”

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2013. All rights reserved.

Five Inside Credit Secrets for Getting a Great Mortgage

Five Inside Credit Secrets for Getting a Great Mortgage

With home prices rising and interest rates well below historic norms, many potential buyers would like to get into the marketplace but are stymied by one hurdle: credit.

“The credit process mystifies many borrowers,” said Ray Brousseau, executive vice president of a nationwide lender. “They worry that their credit may be imperfect or that a late payment from long ago will doom a loan application, when the reality is different.”

Brousseau explained that “lenders and borrowers have similar goals. They both want the mortgage application to go through. The lender will create a package to provide a full picture of the borrower’s financial status. In many cases, borrowers will be surprised that their credit standing is stronger than expected.”

So, how do you make sure you have tip-top credit when applying for a mortgage? Here are five strategies that can lead to a faster – and better – mortgage credit review.

First, prepare for your mortgage application.
Since 2010, most real estate financing has been in the form of “qualified mortgages,” loans that meet the standards outlined by Wall Street Reform. A qualified mortgage – or QM – must show that the borrower has the ability to repay the loan. To meet QM requirements, you can expect lenders to want signed tax returns or W2s for at least the past two years, year-to-date pay stubs from the past 30 days, plus complete copies of all financial statements, usually for at least the last two months. If self-employed, a lender might also want a balance sheet as well as a profit-and-loss statement. Having such information in hand can greatly speed the mortgage review process.

Second, check your credit report in advance.
The better your credit report, the better your credit score, thus the reason to check credit reports for errors and outdated items.
Under the Fair and Accurate Credit Transactions Act (FACTA), consumers can get one free copy of their credit report from each of the three nationwide credit reporting agencies every 12 months. This can be done in a few minutes by going to the official website, AnnualCreditReport.com. Print out your report or save it as a PDF.

Third, know how credit scores work.
In basic terms, credit scores weigh the answers to five questions:

Have you paid bills on time?
How much of your credit is now in use?
How long have you had credit and when was the last time you used selected accounts?
What is your mix of credit card debt, auto loans, student debt, mortgages, etc?
Have you recently opened additional lines of credit?

“Once a loan application is made, most lenders will automatically provide borrowers with a free copy of their credit score,” said Brousseau. “A good credit score can greatly help in the application process, and a lower score can often be overcome by selecting a certain type of mortgage product.”

Fourth, a lower credit score does not always mean no credit.
Borrowers can readily finance and refinance with an 800 credit score, but it’s also true that mortgages are available with lower credit scores. For instance, more than 40 percent of recent FHA borrowers had credit scores between 620 and 680.

Fifth, beware of surprise credit snags.
It used to be that lenders checked credit reports when a loan application was first made and then again just before closing. Now lenders have the ability to even check for daily credit report changes. When new debt or credit lines show up, lenders re-calculate the ability of borrowers to qualify for financing.

Avoid opening new lines of credit, making big purchases or getting more credit in the middle of the application process. When your credit reports are re-checked, and new credit activity shows up, that activity can sometimes scuttle a once-solid mortgage application.

Source: Carrington
This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2013. All rights reserved.

Mortgage Rates Continue Upward Trend

Freddie Mac recently released the results of its Primary Mortgage Market Survey(R) (PMMS®), showing fixed mortgage rates trending higher for the third consecutive week and putting pressure on refinance momentum. Regardless, mortgage rates remain low helping to keep home-buyer affordability high, which should further aid home sales and construction in coming weeks.

The survey showed that the 30-year fixed-rate mortgage (FRM) averaged 3.59 percent with an average 0.7 point for the week ending May 23, 2013, up from last week when it averaged 3.51 percent. Last year at this time, the 30-year FRM averaged 3.78 percent.

Additionally, the 15-year FRM this week averaged 2.77 percent with an average 0.7 point, up from last week when it averaged 2.69 percent. A year ago at this time, the 15-year FRM averaged 3.04 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.63 percent this week with an average 0.5 point, up from last week when it averaged 2.62 percent. A year ago, the 5-year ARM averaged 2.83 percent.

The 1-year Treasury-indexed ARM averaged 2.55 percent this week with an average 0.4 point, the same as last week. At this time last year, the 1-year ARM averaged 2.75 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following links for the Regional and National Mortgage Rate Details and Definitions. Borrowers may still pay closing costs which are not included in the survey.

“Fixed-rates moved up for the third consecutive week, with the average 30-year fixed-rate mortgage about a quarter-percentage point higher than three weeks ago,” says Frank Nothaft, vice president and chief economist, Freddie Mac. “While this may slow some of the refinance momentum, rates are nonetheless low and home-buyer affordability high, which should further aid home sales and construction in coming weeks. For instance, in April, single family housing permits rose to the strongest pace since May 2008 while existing home sales for the same month grew the most since November 2009. Moreover, the National Association of REALTORS® reported that the median number of days on the market for these sales fell from 62 to 46 days, the fewest since it began collecting the data in May 2011.”

For more information, visit www.FreddieMac.com.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2013. All rights reserved.

Mortgage Rates Virtually Unchanged

Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates virtually unchanged and remaining near their record lows amid growing concerns around the fiscal cliff. The 30-year fixed-rate mortgage has averaged below 4.00 percent all but one week in 2012, while the 15-year fixed-rate mortgage has averaged below 3.00 percent since the last week in May.

The 30-year fixed-rate mortgage (FRM) averaged 3.32 percent with an average 0.8 point for the week ending November 29, 2012, up from last week when it averaged 3.31 percent. Last year at this time, the 30-year FRM averaged 4.00 percent.

Additionally, the 15-year FRM this week averaged 2.64 percent with an average 0.6 point, up from last week when it averaged 2.63 percent. A year ago at this time, the 15-year FRM averaged 3.30 percent.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.72 percent this week with an average 0.6 point, down from last week when it averaged 2.74 percent. A year ago, the 5-year ARM averaged 2.90 percent.

The 1-year Treasury-indexed ARM averaged 2.56 percent this week with an average 0.5 point, the same as last week. At this time last year, the 1-year ARM averaged 2.78 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions. Borrowers may still pay closing costs which are not included in the survey.

“Mortgage rates were virtually unchanged this week amid growing concerns around the fiscal cliff. Although low mortgage rates failed to boost new home sales in October, year-to-date sales are up 20 percent compared with 2011 volumes, and there are growing signs of a turnaround in house prices,” says Frank Nothaft, vice president and chief economist, Freddie Mac. “The S&P/Case-Shiller® national home price index (seasonally adjusted) rose 5.2 percent over the first three quarters of this year. In addition, all 20 of the city indices (seasonally adjusted) had positive growth over the first 9 months, led by a 17.9 percent increase in Phoenix. More recently, the Federal Reserve’s November 28th regional economic review, known as the Beige Book, noted that 10 of the 12 districts reported the market for single-family homes continued to improve leading into mid-November.”

For more information, visit www.FreddieMac.com.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Understanding Energy Efficient Mortgages

By Keith Loria

Green features are all the rage today among homebuyers who are looking to lessen their carbon footprint and adhere to a more environmentally friendly lifestyle. Thanks to the Federal Housing Association’s Energy Efficient Mortgage program, homebuyers can add energy efficient features to a house they buy as part of their FHA insured home purchase.

That means that renovating or upgrading your new home to make it more energy efficient won’t be financially out of reach.

Congress first mandated a pilot demonstration of EEMs in five states more than 20 years ago and although it wasn’t a popular program, it did prove to be successful and by 1995, it became a national program. Still, even in a more environmentally friendly 2012, many people are unfamiliar with what these mortgages do.

FHA EEMs provide mortgage insurance for a person to purchase or refinance a principal residence and incorporate the cost of energy efficient improvements into the mortgage. The borrower does not have to qualify for the additional money and does not make a down payment on it.

This “green mortgage” results in a more environmentally friendly living space that uses fewer resources for heating and cooling and has dramatically lower utility costs. The program covers energy efficient upgrades such as the addition of double paned windows, tankless water heaters, modern HVAC systems, the addition of Energy Star appliances and new insulation.

According to data released by the U.S. Department of Energy, 60 percent of all homes in the U.S. are not properly insulated. Updating a home’s insulation can save a homeowner up to 20 percent on heating and cooling costs or up to 10 percent of your total yearly energy bill.

In addition, energy loss from outdated windows accounts for nearly 25 percent of the annual heating and cooling costs for the average American home. Therefore, replacing windows can go a long way toward saving money. In houses with central air and heating, about 20 percent of the air is lost due to faulty, outdated duct work.

Although EEMs are created separately from your primary mortgage, they won’t be considered a second mortgage as they will ultimately be rolled into your primary mortgage.

The FHA requires that you make at least a 3.5 percent cash investment on the property, based on the sale price, and all work must begin within 90 days of closing. The total amount of your mortgage is based on the value of your home plus the projected cost of energy-efficient improvements.

There’s also the Veteran’s Administration EEM, which is available to qualified military personnel, reservists and veterans for energy improvements when purchasing an existing home. The VA EEM caps energy improvements at $3,000 to $6,000.

An EEM mortgage enables a homeowner to make older homes more comfortable and affordable with lower utility payments, plus it lessens the amount of energy needed to maintain the temperature in the home and therefore lessens one’s carbon footprint.

To learn more about energy efficient mortgages, contact our office today.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Question of the Day: Should I lock in my mortgage rate?


Q: Should I lock in my mortgage rate?

 

A: Because the interest rate market fluctuates constantly and is subject to quick movements without notice, locking in a mortgage rate with a lender certainly protects you from the time your lock is confirmed to the day it expires.

 

Lock-ins make sense in a rapidly-rising rate environment or when borrowers expect rates to climb during the next 30 – 60 days, which is typically the amount of time a lock-in remains in effect.

 

A lock-in given at the time of application is useful because it may take the lender several weeks to prepare a loan application.  These days, however, automated loan practices have cut the time quite a bit.

 

Lock-ins are not necessarily free.  Some lenders require you to pay a lock-in fee to guarantee both the rate and the terms.

 

If your lock-in expires before you close on the loan, most lenders will base the loan rate on current market interest rates and points.

 

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Top 10 Homeowner Financing Tips

Real Estate Web ReportTop 10 Homeowner Financing Tips
Here are 10 great tips to consider when getting a mortgage.

1. Don’t Stretch Your Loan Qualification Limits to Buy a Home Beyond Your Budget. A home should be a source of satisfaction and an investment not a financial albatross, especially for first-time buyers. Borrowing heavily from family members, selling assets, and living poor just to own a bigger or better home, makes for larger mortgage payments and risks difficulties in the future.

2. Always Shop for Competitive Rates, Points, and Fees.
 Get at least three bids. The most competitive lender one week may not be next week so get (or reconfirm) quotes the same week you are ready to make the commitment.

3. Get An Immediate Written Confirmation of Your Locked-in Interest Rate and Interest Rate Terms. You might find some discrepancies with the figures used on the final loan documents.

4. Don’t Agree to Prepayment Penalties. You may want to refinance or partially prepay part of the mortgage. If there is no mention of prepayment penalties, make sure you have an addendum attached to the mortgage specifying that no fees will be imposed.

5. Understanding All the Conditions of Your Loan: 
You or a professional that you trust should thoroughly scrutinize each document. Ask questions if you aren’t sure what something means.

6. Pick the Right Kind of Loan. Rates are higher on 30 year loans than on comparable 15 year loans. That’s because there is a greater risk that rates will go up the longer the lender commits to a fixed rate. Lenders hate holding loans at below market rates. While there is an advantage to the predictability of fixed rates, if you expect to be transferred in 5 years, you’ll be paying more than you need for a 30 year fixed rate loan. If you want both the security of predictable payments and the lowest monthly payment consider “hybrid” loans – those with a fixed rate for the first five or seven years of their 30 year duration. If you are going to be there for a shorter period, or have confidence that rates will be dropping further, consider an adjustable rate mortgage.

7. If You Are Buying Rather Than Refinancing, Consider Getting a Pre-approved Mortgage or Contingent Loan Approval Letter. 
The former is a binding commitment for a loan up to a certain amount. It can substantially strengthen your negotiating position with the seller, but it puts pressure on you to close a deal before the loan commitment expires. A contingent approval is a letter from a lender that states the largest loan you would qualify for, subject to confirmation of the financial information you’ve provided and formal approval. It will also give you additional negotiating leverage without binding you to the lender (or vice versa). Sometimes owner financing can work to both parties advantage. Ask the seller if it’s a possibility. If so explore further to see if there might be mutually agreeable terms before making an offer.

8. Save Everything. Lenders require and provide numerous documents. Some get misplaced, usually at the most critical time. Keep copies of everything you send the lender and everything the lender sends you.

9. Take Advantage of the Deduction. The mortgage interest deduction is one of the few remaining tax deductible interest payments, and it’s also the cheapest form of long term financing. Consider financing/refinancing as an alternative source of funds for home improvements or other constructive long term investments like education. Don’t get in over your head, and never use it to finance your summer vacation or other short term pleasures.

10. Study! A lot of money is at stake. You can’t learn too much, and you won’t have time to learn what you need, interview and select a lender in the five days allowed most buyers to apply for a loan. Read the real estate section of your local paper and books on the subject.

Courtesy of the American Homeowners Foundation and the American Homeowners Grassroots Alliance, www.AmericanHomeowners

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Top 8 Things to Know about a Mortgage


Real Estate Web ReportTop 8 Things to Know about a Mortgage

By Barbara Pronin, RISMedia Columnist
Deciding what kind of home loan is best for your needs is an integral part of the home buying process. But it’s not always easy, according to California mortgage broker Ken Go.

Go notes the eight most important factors to compare when shopping for a mortgage:
• Principal – The principal is the amount you are borrowing—or the price of the home you are buying minus the down payment. Lenders will tell you how much they are prepared to lend you based on your income and credit score. That will help you determine how much house you can afford.
• Mortgage type – Mortgages fall into two categories; fixed rate or adjustable. With a fixed rate mortgage, you pay the same amount each month for as long as you have the loan. The interest rate is slightly higher than some adjustable rate mortgages, but adjustable rates change with the market and will likely rise over time.
• Interest rate – A loan with the lowest posted rate may have higher closing costs. Consider the Annual Percentage Rate (APR), which takes into account the interest rate and the loan’s other costs.
• Monthly payment – A mortgage loan should help you build equity in your home. The best one may or may not be the one that carries the lowest monthly payment. Consult a mortgage broker for details.
• Term – The term is the number of years your loan will remain active. Mortgages with shorter terms generally carry a higher monthly payment but they can save you a lot of interest over the years.
• Discount points – A point is equal to one percent of the principal. Lenders may offer you the chance to pay points in order to lower the interest rate of your mortgage. If you plan to stay in the home a long time, it may make sense to pay points.
• Lock-ins – When you apply for a loan, the lender will quote you the rates. But rates can go up while you shopping for a home, so it’s a good idea to lock in the quoted rates. There may or may not be a fee to do so.
• Closing costs – Origination fees, appraisal fees, and other costs will be added to your loan. Ask your lender for a good faith estimate of the costs, and an explanation of any charges you don’t understand.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.