REAL ESTATE FINANCING – YOUR HOME LOAN
Ok, getting a real estate loan is not fun. You have to fill out loan documents, pay for appraisals, and give them even more of your money to get their money. But it can be really painful if you are not dealing with a together loan broker. It is a huge advantage to have someone who will provide clear, reality based information, return your calls in a timely manner, and stay on top of the entire process. Because we, at Coldwell Banker Mountain Gate Properties, assist our clients in obtaining their financing, we usually have a good idea of which lenders are better to work with.
CHOOSING THE LENDER: Most often, buyers look for the lender with the lowest interest rates. Since rates on similar loans are generally very close from company to company, it is usually more important to find out which have the lowest loan fees. The difference from lender to lender can be in the thousands of dollars. Sometimes the extra costs are hidden in what are called “garbage or junk fees” which are not visible until you are signing your loan documents, just before the loan is funded. They can include document fees, points, warehouse fees, etc. A Truth In Lending Disclosure from the lender will list the finance charges for your loan. It is extremely important to request this from the lender at the very beginning of the process to decide which lender to work with.
It is good to get to know the loan agent before you make your final choice. They should be someone you feel comfortable with and trust. We may refer you to Mount Shasta or Yreka real estate lenders or out of area ones (often Redding) and usually give you a few to choose from.
FIXED VS ADJUSTABLE INTEREST: In a fixed rate loan the interest rate stays the same throughout the life of the loan. In an Adjustable rate loan the interest rate varies over time based upon a specific index.
We generally recommend fixed rate loans, especially when rates are lower. You know where you stand with the loan, the payments do not change, and there is no negative amortization.
We normally advise against adjustable rate mortgages but they can be advantageous in certain circumstances. If you know you will own the home for a relatively short time your overall costs can be lower. Even if you plan to keep your home indefinitely, if the interest rates are at the top of the long term range when you get the loan they will decrease over time. With most adjustable rate loans the payments increase or decrease as the rates vary. With some the payments stay the same but the loan balance can actually increase. Many of the people who lost their homes to foreclosure in the latter 2000’s had adjustable rate loans.
QUALIFYING FOR FINANCING: Filling out loan applications is not fun but if done properly can protect the borrower as well as the lender. Unrealistic standards in the mid 2000’s resulted in thousands of people losing their homes. Qualifying is based upon the borrower’s credit history and the ratio of their total debt payments to their income. The lenders also look at how long the person has had their job, the source of the down payment, and the ratio of the amount of down payment to the loan balance.
The home must also qualify. An appraiser will determine the value of the home and make sure there are no problems with property that could jeopardize the lender’s security.
Here are a few important tips. Keep your debt down before obtaining the loan – don’t buy that new car just yet. Make sure there is a valid and visible source for your down payment. Check with a good lender if you have questions.
PREQUALIFYING FOR FINANCING: This is great to do in the beginning of your real estate search. The lender will let you know if you will qualify for financing and how much you can borrow. Since this is a based upon preliminary information it is not a guarantee of financing but will give you a good start. Further, if you are marginal in qualifying, a good lender may be able to give you pointers on what you need to do to improve your situation. They may ask you to pay down certain debts to improve your credit rating and your debt to income ratios. They could even suggest you take on debt if you have no credit history.
15 YEAR VS 30 YEAR LOANS: The 15 year mortgages have lower interest rates and higher payments. Your overall costs are lower over time but your payments are higher. You may need a 30 year loan to qualify for the financing.
MAKING HIGHER PAYMENTS ON YOUR LOAN: Once you have purchased your home consider making higher than required payments. In the early part of a loan most of the payment goes to interest. Any extra amount you pay that is applied to the loan balance means lower interest charges in the future and an earlier payoff. Sounds great – no home loan!
DUE ON SALE CLAUSE / ACCELERATION CLAUSE: Most real estate loans from conventional lenders have due on sale clauses. This means that when you sell your home the loan will need to be paid off.
PREPAYMENT PENALITES: A prepayment penalty can be a large fee charged by the lender if the loan is paid off early. Most real estate home loans do not have prepayment penalties. Some lenders, particularly those that deal with buyers with poor qualifications charge these fees. Be sure to find out if this is part of your loan.
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