Buying a home remains the great American dream. Home ownership rates have been exploding in recent years, spurred on by the historically low interest rates in the home mortgage market. Home prices have been rising at far faster than inflation, especially in major urban areas such as San Francisco, San Diego and Chicago. This means that not only can that home you?ve always wanted put a roof over your head, but it can provide you with a great investment as well. For people new to the mortgage market, buying their first home starts with finding the best home loans.
By first finding out how much house you can afford, you're doing yourself and your Realtor a huge favor since there won't be the question of 'can I afford it.' If it's not in your budget, don't bother looking, and if it is in your budget, you can be confident that you can find financing for it. Since buying a home is the largest single investment most Americans make, it's definitely not to be taken lightly. If you spend a short while to learn about mortgages before you get started, it will be worth it.
Home loans are available from a wide variety of sources. These sources include banks, savings and loan associations, credit unions and mortgage brokers. Shop around at all of these sources to find the home loans with the lowest interest rate and lowest costs.
Adjustable (variable) rate mortgages (ARMs) and fixed rate mortgages are the two main types that you'll be looking at. The ARM will typically be a less expensive rate since it 'adjusts' to whatever the current market rate is after a certain period of time. ARMs with below-market rates are sometimes used as a promotional tool, and after a very short term your rate could skyrocket to much higher than you should be paying. Make sure you get the facts before your sign.
Before signing up for a variable rate mortgage, make sure you find out what the interest rate cap is. Variable rate home loans are usually based on an underlying interest rate, like the prime rate. The interest rate you pay will typically be the prime rate plus or minus a certain percentage. The variable rate mortgage will have a cap above which the interest rate cannot rise. Find out what that cap is, then use a mortgage payment calculator to see what your monthly mortgage payment will be at that rate. If you cannot afford the monthly payments at the maximum interest rate, you may not want to take the mortgage loan. While it is unlikely that interest rates will rise sufficiently to make the maximum interest rate kick in, it is always a possibility.
Currently, interest rates are very low because of the recession, and by getting into and adjustable rate right now, you're setting yourself up to more than likely be paying a higher rate later when the fed raises the prime rate. Since mortgage companies know this, they're offering even lower rates to give you an incentive to get into an ARM. If the rate is set to adjust after, say, 5 years, but you only plan on staying in that house for 2 or 3, it might be an excellent idea to take advantage of that rate, then pay off the mortgage when you sell your home before the intro rate expires.
Fixed rate mortgages are less complicated than ARMs because you know exactly what your payment is for the life of the mortgage. The fixed rate, as it implies, locks in your interest rate for the entire duration of the loan, which is great for current economic times with low interest. This type of mortgage protects you if interest rates go up, and if interest rates fall, you'll have the option to refinance at the lower rate.
If you can afford the payments, 15-year home loans can substantially lower the amount of money you will ultimately pay for your home. When you run the numbers on a 15-year versus a 30-year home mortgage loan, you may be surprised at how affordable the 15-year home loan can be. Your mortgage payment will not double if you go with a 15-year mortgage versus a 30-year. This has to do with the affect of compound interest. You are paying far less interest in the long run on a 15-year mortgage.
Whatever type of home loan you decide on, the most important thing is to take that step which transforms you from a mere renter to a home owner and builder of equity. There are a great many home loans out there, but once you find the right one, you will find the rewards of home ownership well worth the time and effort put forth.
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