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The Ideal Mortgage
Mortgage rate is at 30-year low, can
you truly capitalize on this?
You may have heard that mortgage rates are at a 30 year low
right now, but how can you capitalize on this? Even though the
rates are low, many mortgage lenders are tightening their belts
and avoiding any potentially risky borrowers. Just like any
other product, you will want to shop around and compare
different lender offerings to save thousands of dollars in the
end.
The first step to getting a good mortgage is to figure out how
much house you can afford. Many Americans are suffering
foreclosures now because they simply over-purchased. Some
thought they were getting a great deal with an interest only or
adjustable rate mortgage, while others encountered generous,
even desperate, lenders who wanted to move more products in an
over-inflated market. As a general rule, you can take your
annual income, multiply it by 0.28 and divide by 12 for your
monthly housing budget. You may even want to factor in some of
your other debt obligations. You should never be paying more
than 36% of your annual income on alimony, auto loans,
mortgages, credit cards and other debts. To determine your
monthly debt allowance, multiply your annual salary by 0.36 and
divide by 12. For example, if you make $40,000/year, you can
afford $933/month realest ate or $1,200 of total debt
obligations.
Next, you'll want to make sure you've saved
enough money for a down payment. For the most lenient loans
today (like "conforming loans" offered by Fannie and Freddie),
you will need 10% of the house price saved (so $10,000 on a
$100,000 house), plus closing costs, which could easily be
another $5,000. However, to ensure the best mortgage deal, you
will have saved 20% to 25% (so $20,000 to $25,000 on a $100,000
house). If you put down less than 20%, lenders will often
require you to purchase private mortgage insurance, which will
add to the unanticipated costs of home ownership. To save
money, you should calculate how much you need to save, set up a
separate account (or even an automatic account so you won't be
tempted to spend) and give yourself a reasonable time frame (1
to 2 years). You'll be surprised how much you can save once you
have a plan in place! Realtors often recommend locking chunks
of money into 6 to 12 month bank CDs, where you will earn
interest as your money sits.
Lastly, look for a mortgage from a trusted financial
institution. There are a lot of shysters out there, looking to
capitalize off desperate people who desire instant home
ownership, without doing all the necessary prep work. Look for
lenders who are in good standing with the Better Business
Bureau and who are affiliated with the FDIC. Beware of
too-good-to-be-true TV ads, telemarketers and salespeople who
offer fast, easy loans.
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