Choosing a mortgage

Mortgage rates have stayed relatively low, but they are still considerably above rock-bottom levels reached two years ago, and many worry that they will ultimately head higher. It is one of the reasons why Realtors think it is a great time to buy or move now.

Still, that's not the only consideration when choosing a mortgage. Here's how to make the decision.

1. 15-year versus 30-year debate

The first question you should ask is, "How much can I afford to pay on a monthly basis?"
Keep in mind, your mortgage payment is only part of what you'll pay to live in your home. You also should budget for furniture, your house's upkeep and the general expenses of life (like, say, food).

A 30-year mortgage will have a lower monthly payment and a higher interest rate than a 15-year mortgage.

So you'll have a smaller monthly obligation but you'll pay more for your house over time because you're paying it off with interest for a longer period.
Conversely, a 15-year mortgage will have a higher monthly payment and a lower interest rate so you'll pay less for your house because you're paying it off in a shorter period.

"For most home buyers, especially first-time buyers, taking a 15-year (or 20-year) mortgage is out of the question," said Keith Gumbinger, vice president for mortgage tracker HSH Associates. The higher monthly payments are often too much to handle for these types of buyers.
But for home buyers with sufficient income and a desire to be mortgage-free in a short time, a 15-year loan might be a good bet.

If you do not feel comfortable commiting to 15-year loan, do yourself a favor at least and every time you save some moeny put them toward priciple of the mortgage, it will reduce the amount of moeny your own, and therefore, it will reduce how long it will take to pay it off and some interest money.

2. Fixed versus adjustable-rate conundrum

The second question you should ask is, "How long will you be in the house?" You probably can't answer with absolute certainty, but you can play the odds.

Say, for example, you're single and buying a small condo but you can easily envision yourself married; or you've just started a family and plan to expand it at some point. Chances are good you'll want to trade up to a new home in five to seven years. On the other hand, maybe you've had your family and want to settle into a place with a good school system, which your kids will be using for the next 12 years.

My experience says that most people stay in the house/condo longer than they though they would originally. So keep that in mind.

Whatever the answer, it will help you decide whether it makes sense to get a fixed-rate or an adjustable-rate mortgage (ARM).

A fixed-rate mortgage locks in a rate for the length of your loan.

ARMs, meanwhile, are short-term fixed-rate loans: After the fixed rate term is up, the rate adjusts at regular intervals in accordance with current interest rate conditions at that time.

A 5/1 ARM, for example, has a fixed rate for five years and then adjusts every year for the next 25 years. (ARMs typically run on a 30-year schedule.)

The length of the fixed-rate term on an ARM typically can range anywhere from one month to 10 years. The longer the rate is fixed, the higher the interest rate you'll get.

But generally speaking -- and there have been exceptions in the past -- ARMs will cost you less in the short-term. With the ARM, both your monthly payments and interest rates should be lower than either a fixed rate 15-year or 30-year mortgage.

The risk with an ARM is that when interest rates rise, you could end up paying much more than you bargained for. "You're subject to the vagaries of the market," Gumbinger said. That's why in today's low-rate environment, he noted, "You want to maximize the fixed-rate picture to match your time frame."

If you know you'll be in a home for 12 years or more, a 30-year fixed rate mortgage might work better for you than, say, a 5/1 ARM, where you fix a rate for five years and then it adjusts every year after that. But if you think you won't be in the home longer than five or six years, a 5/1 ARM might make more sense.

3. A dollars-and-sense exercise

Say you need a $200,000 loan to buy a home and you can get the current average rates for a 30-year fixed, a 15-year fixed, or a 5/1 adjustable rate mortgage.

If the 30-year fixed rate mortgage is at 6.62 percent - a level it was at just a few months ago - your monthly payment would be $1,280. The interest you pay over the life of your loan would total $260,786.

With a 15-year fixed rate at 5.94 percent, your monthly payment would be $1,681. The interest you pay over the life of your loan would total $102,623, or about $158,163 less than the 30-year fixed.

With a 5/1 ARM at 4.20 percent, your monthly payment would be $978 for the first five years. The total interest you pay over the life of the loan if you stayed in your home past five years is anyone's guess because your rate would then adjust annually. But if you move after five years, that won't be an issue.

So, to say the least it is only few things to consider...And, always compare at least 2-3 mortgage companies, you will be surprise how different they charge you so called "closing costs"

Why Mortgage Insurance is not such a bad idea?

1. What is Mortgage Insurance (MI)?
Normaly, if you do not have at least 20% down of your funds in the house (in other words, you are financing more than 80% of the house value), the lender charges you Mortgage Insurance monthly. For loan amount $315,000, MI might be between $130-145/month
2. Reasons why MI is not a bad idea?
a. Only recently, MI became tax deductible (with conditions until 2010)
b. You can also cancel without refinancing when you have 20% down. In other words, all you would need to do is to call your lender and ask him to cancel MI if you either reached 20% of house value by paying it or by reevaluating the house value.
c. You can have eliminate MI from the begining if you have 2 mortgages. They call them 80/20 meaning one mortgage cover 80% house value, but not to pay MI, person took 2nd mortgage of 20% house value. However, if you have only one mortgage with MI, you may have easier access to equity because you only have one mortgage, but not 100% financing as 80/20 might be.
d. 2nd mortgage of house value almost always has variable rates; therefore, variable payments. With only one mortgage with MI, you will have predictable payments and no variable rate.
3. Is there 100% financing with no MI?
Yes, No MI loans are available up to 100% on conforming and 90% on Jumbo.

When you shop for loan make sure you understand all fees. Interest rate is not the only important number. For instance, you may have the lowest rate available out there, but your monthly payments would be higher than your friend' with highest interest out there. why?

I will try to explain to you tomorrow....

Marina
801-649-5883

Next article of "A to Z" section: "B"-Before Looking...

Before Looking

1. Before you actively look at homes to buy, it's necessary to know how much you can qualify for. Use mortgage calculators to determine how much you can buy with your down payment and closing cost money and what your monthly payments will be.
2. Know Your Credit Worthiness
3. Look at your credit report before you go to a lender. It is not uncommon to find problems with reports, especially if you have a common last name. To get copies of your credit report, start at fico.com.
4. Get Pre-Approved
After you see your credit report and any problems are cleared up, get pre-approved with a lender. Take the steps necessary to get a letter from the lender stating you are "pre-approved" or "pre-qualified" for a loan in a specific price range. It's important to have this letter before you make a contract offer to buy real estate. Once you are pre-approved, you know what price range of homes you should be looking at.
5. Find a Realtor, and provide pre-approval letter to him or her, so she/he can use it correctly in writting an offer in the near future.
6. What Kind of House is Right?
Determine the specifics you want and need in a home. (Keep in mind your price range, determine what your first priorities are vs. something you would like to have)
Ø What are your day to day and future needs?
Ø Do you enjoy swinging a hammer?
Ø Older houses have great charm, but may need updating.
Ø New homes offer the latest energy efficiency and design features. (in Salt Lake County, there are certain georgraphical place where easier to find new home or older ones)
Ø Larger lots can give room for additions and swimming pools.
Ø A fixer upper can dramatically increase in worth.
Ø A PUD may have private recreational facilities such as a pool and play parks.
Ø A condo or town-house will relieve you of yard work and exterior maintenance.
7. Sit down with your real estate agent and make up a wants and needs list. Knowing your price range, your agent can determine in what neighborhoods or towns to start looking. You may find that you are limited to where you look based on your situation. There is no sense in wasting your or your agent's time in areas out of your price range. The agent will show you how the lis of available homes is getting reduced based on things (search criterias) you have to have in your future homes. The agent will advice you of either narrowing you search (by providing more criterias) or making it broader (because there are too few places to choose from).
8. Little more on Wants and Needs
Ø Price range
Ø Building style/design
Ø New construction
Ø Remodeled
Ø Fixer upper
Ø Minimum # bedrooms
Ø Bathrooms
Ø Family room
Ø Fire place
Ø Office/den
Ø Hardwood floors
Ø Swimming pool / Spa
Ø In-law quarters
Ø Workshop
Ø Central air conditioning
Ø Parking facilities
Ø Yard size
Ø School district
Ø Work locations
Ø Special zoning or location
9. With a list of houses that you can afford to buy, drive-by them and check out the surrounding neighborhood. Check insid pictures of the homes. These steps may help you eliminating homes from the list to see. Next make an appointment with your real estate agent to view the interior of the ones you are interested in.
10. After you have narrowed your selection to few houses you wish to buy it is important to visit them at different times of the day. Visit them during the morning commute time. If you visit only during the middle of the day, you might not notice if the street in front of the home is used as a minor thoroughfare or a shortcut. This is also a good time to find out how you emerge from you residential area into traffic on a thoroughfare or how long it takes for freeway access. Go back after dark and walk around the block. You might notice that headlights from approaching traffic shine into the home or hear sounds from a nearby night club or park that you were not aware of.
11. After previewing a number of homes, you will want to preview some (the ones you think of writting an offer for) a second time.This is the time to make measurements, ask questions and make a closer self-inspection. When you want to make an offer, ask your agent for sales comps to arrive at an offering price. A "seller's market" or "buyer's market" can have big effect on how much to offer. There is no sense in making a low offer on a well priced home in a seller's market.
A properly written contract will allow a buyer a number of outs if certain items are not met or approved. Get a copy of a typical real estate contract prior to making an offer and have your agent go over it with you. To find out what prices homes are listed for in areas you are considering, go to your local MLS (my site is featuring it at www.usaRUSSIArealty.com).
12. Even though you are pre-approved, the amount you are preapproved for may not be comfortable for you.