Buy A Foreclosure Home

Buying a home remains the great American dream. Home ownership rates have been exploding in recent years, spurred on by the historically low interest rates in the home mortgage market. Home prices have been rising at far faster than inflation, especially in major urban areas such as San Francisco, San Diego and Chicago. This means that not only can that home you?ve always wanted put a roof over your head, but it can provide you with a great investment as well. For people new to the mortgage market, buying their first home starts with finding the best home loans.

By first finding out how much house you can afford, you’re doing yourself and your Realtor a huge favor since there won’t be the question of ‘can I afford it.’ If it’s not in your budget, don’t bother looking, and if it is in your budget, you can be confident that you can find financing for it. Since buying a home is the largest single investment most Americans make, it’s definitely not to be taken lightly. If you spend a short while to learn about mortgages before you get started, it will be worth it.

Start your research with your local mortgage brokers, banks, and credit unions. Make sure you’re comfortable talking with the broker, and he or she is able to spend a little extra time with you to educate you. At the same time you’re looking for the right ‘person,’ you also don’t want to get stuck with an expensive loan, so do some price shopping to compare rates and fees as well.

When you’re looking at rates, you will be shown two different types – variable/adjustable rate (ARM) and fixed rate. The ARM rate is usually shown as a promotion at a cheap rate, sometimes called a “teaser.” After the fixed period of the ARM is up, you can expect rates to rise significantly if you get into one of these adjustable rate mortgages.

Before signing up for a variable rate mortgage, make sure you find out what the interest rate cap is. Variable rate home loans are usually based on an underlying interest rate, like the prime rate. The interest rate you pay will typically be the prime rate plus or minus a certain percentage. The variable rate mortgage will have a cap above which the interest rate cannot rise. Find out what that cap is, then use a mortgage payment calculator to see what your monthly mortgage payment will be at that rate. If you cannot afford the monthly payments at the maximum interest rate, you may not want to take the mortgage loan. While it is unlikely that interest rates will rise sufficiently to make the maximum interest rate kick in, it is always a possibility.

Currently, interest rates are very low because of the recession, and by getting into and adjustable rate right now, you’re setting yourself up to more than likely be paying a higher rate later when the fed raises the prime rate. Since mortgage companies know this, they’re offering even lower rates to give you an incentive to get into an ARM. If the rate is set to adjust after, say, 5 years, but you only plan on staying in that house for 2 or 3, it might be an excellent idea to take advantage of that rate, then pay off the mortgage when you sell your home before the intro rate expires.

Fixed rate mortgages are less complicated than ARMs because you know exactly what your payment is for the life of the mortgage. The fixed rate, as it implies, locks in your interest rate for the entire duration of the loan, which is great for current economic times with low interest. This type of mortgage protects you if interest rates go up, and if interest rates fall, you’ll have the option to refinance at the lower rate.

Your mortgage term, or length, is another deciding factor of how much interest you’ll end up paying. With a longer term, you’ll pay more interest since your loan is amortized over more years – creating more compound interest. If you need the flexibility to make smaller payments by taking on a longer mortgage term, you can always pay more toward your principal at any time to help reduce the length of the loan. Just by paying a few extra principal payments/year can save you tens of thousands of dollars in interest!

Whatever type of home loan you decide on, the most important thing is to take that step which transforms you from a mere renter to a home owner and builder of equity. There are a great many home loans out there, but once you find the right one, you will find the rewards of home ownership well worth the time and effort put forth.