BASIC MORTGAGE INFORMATION
(Please be advised that the information presented here is generalized. Your specific mortgage situation may differ. Please consult your tax advisor for more information.)
How Large of a Mortgage Will You Qualify For?
You can usually qualify for a mortgage loan of two to two and one-half times your household’s income. For example, if your family has an income of $40,000 per year, you can usually qualify for a mortgage of $80,000 to $100,000.
Some lenders use other factors to determine the size of a mortgage you are eligible for. In general, lenders prefer that your housing expenses (mortgage, tax payments, insurance and special assessments) do not exceed 25% of your gross monthly income. Other financial obligations (monthly payments extending more than 10 months) should not exceed more than 36% of your gross monthly income.
Lenders need to research your credit history to see how well you have repaid loans in the past. Also, the lender will inquire about your employment history.
What’s the Difference Between a Fixed Rate and an Adjustable Rate?
Both types of loans have their pros and cons. For example, a fixed rate mortgage is appealing because you always know what your payment will be. On the other hand, when interest rates are high, choosing the adjustable rate mortgage is favored because it is probable that the interest rate will drop in the future, resulting in smaller monthly payments. However, with an adjustable rate mortgage you run the risk of ending up with a higher payment should the interest rate soar during the life of the loan.
Adjustable rate mortgages can be advantageous because they generally offer a lower initial interest rate than a fixed rate loan, but an increase in the interest rate will result in a higher monthly payment, unlike the fixed rate loan.
What are Some of the Different Types of Mortgage Programs?
There are several types of adjustable rate and fixed rate mortgage loans. Here are some of the more common loans:
Which Mortgage is Best?
There are several types of mortgage plans available that are appropriate for different needs. If you are more comfortable with a steady payment, then you will want to choose a fixed rate loan. You may select the common 30 year fixed rate mortgage. This type of loan is beneficial if you plan on living in your home for several years.
On the other hand, if you expect to keep the house for only a short period of time or prefer an adjustable rate mortgage, you will want to investigate other loan options. There are many mortgage programs available to fit your needs. Consult your real estate professional for more information.
How Much Money Will You Need to Close the Transaction?