Once you have figured out how much cash you could raise for a down payment, you should have an estimate of how much you can spend for a home. Use 20% as your starting point. If you have US Dollars 30,000 to put down, divide that by 20%. This will give you US Dollars 150,000 as an answer. If this seems reasonable for a home in your area, you have the whole spectrum of loans from which to choose. If this is unrealistic for your area, you know that you are going to need a loan with less than 20% down. If you divide US Dollars 30,000 by 10%, you get US Dollars 300,000. Is this realistic? Play with the numbers. The greater the percentage you can put down, the more loans are available to you. You should also include a cushion of a few percent for possible points and closing costs. You are also going to need moving money, and you do not want to move in without some money for unexpected expenses.
The final step is comparing your rent to the cost of a new home. If you are getting professional counseling, this will probably be covered. If not, be sure to ask what you should expect to be included in your total payment. Taxes, insurance, and other possible assessments are often required to be paid with your monthly principal and interest payment. Also, talk to as many people you know who own homes. Did they have any expenses beyond normal maintenance that hit them unexpectedly?
Even the location change should be considered. Are you moving farther from your work? Will there be any appreciable expense in commuting? The drive from Riverside, California, to Los Angeles can cost you additional fuel and maintenance for your car. If you want to take advantage of the fast lane, you are going to have to pay the Fastrak toll. If you now have to take the train in from Connecticut to New York City, how much will it cost? Just as small savings can add up, small expenses can add up, too. Be sure to consider them before making your final decision.
Before getting into specific types of loans, you should be aware of the difference between A loans and B and C loans. The loans called A loans are for borrowers without serious qualification problems. There are differences among A loans, but they are usually small. The relative strength of the borrower may result in an interest rate difference of .125% to .5%. This difference could also be from using the wrong lender or an incompetent mortgage broker.
If you do not qualify for an A loan, you drop to the B or C category. The B and C categories are for borrowers whose credit score or history does not allow them to be in the preferred A category. In these categories, the rate difference becomes more significant, usually 2%–3%. You will know when a potential lender tells you the rate that it wants to charge you if it is in the A category. If you are not sure, ask. If it is not, ask for specific reasons why. Then talk to a mortgage broker.
Mortgage brokers have access to many lenders, where a direct lender only serves one. A competent, experienced broker should know if you can get an A loan from any lender. If not, he or she may be able to suggest some things you could do to qualify, like paying off a few small bills. Do not settle for less than an A loan before you have exhausted the possibilities of getting one. Now that you understand the factors that go into gathering a loan and what mortgages are all about, you need to decide which type is best for you.
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Note: This article was sent to us by: Kevin S. Cooper at 05122010
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