Home Financing Principles
Financing a home is perceived to be one of the most complicated transactions a person can make. It can be a difficult and confusing process, from deciding whether homeownership is right for you to finally making the move into your new home. Countrywide, a national leader in residential finance, offers tips that can make home financing decisions a little easier. Today, consumers are more educated and prepared than ever when seeking a mortgage. However, home finance is still an area that is confusing and intimidating to most people. Prospective buyers and homeowners should take advantage of the wealth of information and loan programs out there and be aware of some common misperceptions. Here are some tips and tools to help you make the home financing decision that’s right for you: 1. Estimate how long you might be in your home. The length of time you intend to spend in your home should be a major factor in your home finance decision. The 30-year fixed rate loan isn’t your only choice anymore – there is a wide variety of loan options to suit almost any financial situation. Example: A young couple buying a one bedroom condo may not plan to be in their first home for more than a few years. Given their short timeframe, this couple could look at adjustable rate loans that may give them a lower interest rate for the short time they plan to be in the home. As an alternative, they may decide to take advantage of a loan option that would give them a fixed interest rate for the few years they will be in the home rather than taking a higher rate 30-year loan. 2. Determine the level of “risk” you’re willing to take and realize that you don’t necessarily have to keep the same mortgage forever. Do you need to know that you’ll be making the same mortgage payment every month for the next 30 years? Or would you rather take advantage of lower rate adjustable rate loans over the short term and take a chance that rates might rise? Or, would you be more comfortable with a combination of both? 3. Know how much money you have on hand for a downpayment and closing costs (consider downpayment options – zero down, 80/20, VA) The days of the required 20% downpayment have been gone for some time. A more common downpayment today is less than 10%, and many people choose to put even
less money down when purchasing a home. There are even mortgages that require no downpayment and will cover a portion of closing costs. All these options were designed based on years of lending experience and a desire to help more people achieve the American dream of homeownership. 4. Choose a trusted advisor who can counsel you through financing options. Financing can make or break a home purchase. Be sure to work with a mortgage lender before you begin your home search to understand how much you will be able to spend on a home. Your lender can analyze your financial situation, discuss with you your personal goals and then provide you with financing options to consider. 5. You should think about your mortgage as a financial management tool. Which loan type will help me best manage my own individual financial circumstances? Do I have a fluctuating cash flow? Want to invest my money in areas where I think I might see a higher return? With the wide variety of mortgage options that exist today, there is the ability to use a mortgage as a money management tool. Some loan options allow buyers to choose from different monthly payment amounts to enable them to manage a fluctuating cash flow. Other loans require homeowners to pay only the interest on their loans, allowing them to use or invest their cash in other ways.