Author: Ryann Cairns
Over the past few years, real estate has been one of the hottest areas in the financial world. More and more people are making the move from letting to buying, and as the housing market heats up, banks have come up with some very creative ways to allow potential home buyers to afford the home of their dreams. Of course, capital repayment is the cornerstone of any loan agreement, but the way these loans are structured can vary quite a bit.
There are loans that have a fixed rate for the entire period of the loan. There are also loans whose rates will vary along with overall interest rates. There are also a variety of complex loans that incorporate balloon payments and other unusual payment methods, all in an attempt to help more people qualify for home loans. There are a number of things to watch out for a some basic steps to take both when shopping for a home and when shopping for the mortgage that comes with it.
The first consideration should always be how much you can afford to pay for a home. Capital repayment, and your ability to make the monthly payments on the mortgage, should be your primary focus. Many of today’s loans are designed to allow people to buy more home than they can really afford. You may think this is a great thing, but there are several reasons why it is not wise to accumulate more home debt than you can comfortably afford to pay back.
For one thing, it will be no fun to have your finances stretched so thin for the next couple of decades. If you have any doubts at all about your ability to make your monthly mortgage payments, looking for a smaller, less expensive house may be a good thing to do. As your income rises in the future and you are able to make larger payments, you can always go back out and buy a larger home. Hopefully the rising value of the small home you buy today can help you afford a larger home in the future.
Another thing to remember is that you will need funds set aside for the inevitable home repairs. Even new homes will need some maintenance and repairs, and having a good emergency fund on hand will prevent you having to tap credit cards or other high interest sources of money when you run into a problem. As you are shopping for a mortgage, remember that it pays to shop around.
Do not limit yourself to one lender, or even one category of lenders. Just about every type of financial instaitution writes mortgage loans, and you may be able to find a lower rate, and lower payments, just by shopping around. Finally, be sure that your new home is adequately insured against fire, flood and other natural disasters. Mortgage insurance is often mandatory and will come bundled with the mortgage, but that is not always the case.
If insurance is not part of your mortgage loan, make sure you find a good quality provider of homeowners’ insurance. Be sure that the policy covers the replacement value of your home, not just its present value. Home prices and construction costs tend to rise over time, and you don’t want to be caught underinsured when disaster strikes. The process of buying a home and obtaining a mortgage loan can be stressful, but a few precautions and some good old common sense can help you get a great deal.