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By Tom Levine
Here are our Top 10 most important things to consider when shopping for a Home
Loan, Equity Line of Credit, or Refinance, courtesy of LoanResources.Net
(http://LoanResources.Net): Down-Payment Fixed Versus Adjustable
Rate APR Loan Types Loan Amount Qualification, Income Loan Amount
Qualification, Expenses Employment and Credit History Points Sub-Prime
Loans Short-Forms
1. Down-Payment - As a general rule of thumb, lenders will be seeking
contribution from you of around 3% to 6% of the total loan value. This can be
negotiable, and there are many loan packages available.
2. Fixed versus Adjustable – The two most common loan products available for
home mortgages are fixed rate versus adjustable rate.
Fixed rate means that you agree on an APR (annual percentage rate) that does
not change through the life of the loan, whereas, an Adjustable Rate
Mortgage, better known as an ARM, means that rates and monthly payments can
change, often tied to the U.S. Government Treasury Bills or some other form
of “index”, with the frequency of change dependent upon the terms of the loan.
Deciding on which way to go involves many variables. We suggest that you start
by examining the fixed rate products available on the market. They are by far
the most popular, and arguably with the least amount of risk. After
evaluating several preliminary loan offers (quotes) for fixed rate mortgages,
you can then venture into the world of ARM’s to see if one of these products
may be right for you. But, proceed with caution, and understand all the
risks, alongside any potential benefits.
3. APR – APR, better known as the annual percentage rate, aka: “rate”, is
arguably the most important consideration you must examine when looking for a
loan. The APR includes principle, interest, “points”, fees, PMI (Mortgage
insurance), and other costs associated with the loan. While all costs and
terms are significant and affect the bottom line, we suggest that shopping
rate is a very good starting point.
4. Loan Types: There are several standard loan products to look for, including
30 year fixed, 15 year fixed, bi-weekly mortgages, 1 month ARM’s, 5 year
fixed ARM’s, 2nd Fixed, ARM’s with a provision to convert after 5 years,
lender buydowns, and discounted mortgages.
We think the best place to start, is to obtain quotes for a 30 year fixed rate
loan, and then go from there. 30 year fixed rate loans generally produce the
lowest monthly payments for fixed rate products, and they are relatively safe.
Once you know where you stand with a 30 year fixed, after obtaining quotes
from several lending institutions, then you can consider the possibility of
exploring more exotic loan products. At this juncture, you will want to
consult with those you trust, for good, solid advice and feedback on risk
versus reward.
5. Loan Amount Qualification, Income: This can vary widely depending on you,
your lender, and many other variables. However, as a rule of thumb, look at 2
to 2 ½ times your current household income, as a baseline to determine how
much you can afford to borrow.
6. Loan Amount Qualification, Expenses: This is another broad category that
varies from one lending institution to the next. However, there are two
general factors to look at, and they are Housing Expenses (such as mortgage,
property taxes, and insurance), and long-term debt (which can include credit
cards, auto loans, etc.).
First, add all your expenses together. As a rule of thumb, you will want your
expenses to not exceed 33% to 36% of your gross household income.
Second, examine your housing expenses only. As a rule of thumb, you’ll want
these expenses to not exceed 25% to 28% of your gross household income.7.
Employment and Credit History: Lenders generally want to take a look at your
employment history so that they can see a pattern of stability and income.
Lenders generally also want to take a look at your credit history, so that
they can see a pattern of borrowing and repayment in your past. Lenders
cannot discriminate and must use this information solely for the purpose of
considering your ability to repay a loan. Also, many loan products are
available for all kinds of customers, with varied financial backgrounds and
histories.
8. Points: Points are one of the primary fees charged on the loan, and they
represent the profit earned by the lending institution. One point represents
one percent of the total loan amount, and points are usually tax-deductible
(along with the interest paid on the loan). They are broken down into two
basic types:
Origination Points – Origination Points are the fees charged by the lender,
and represents their gross profit.
Discount Points – Discount Points are most often charged in association with a
lowered interest rate. In other words, the Discount Points represents a
dollar amount, as a fee for giving the borrower a lowered APR (lower than
what the lender might otherwise charge).
9. Sub-Prime Loans: Sub-Prime Loans consist of loan products designed for
customers with challenging credit and financial backgrounds, or, customers
that are looking to re-establish credit. They can be significantly higher
then the prime lending rate, with less favorable terms (Often times, the
loans are for the short-term, such as 2 to 3 years). However, they do offer a
venue for certain individuals, and they can allow customers to re-establish
credit, or buy new homes prior to cleaning up a credit history, etc.
For some of you, this avenue may offer exactly what you’re looking for. It’s
important to know that lenders who specialize in sub-prime loans are out
there and want to earn your business. However, we advise that you proceed
with caution. Be sure to gather sound advice from trusted friends and
professionals, and understand all the risks versus rewards, prior to signing
on the dotted line.
10. Short-Forms: The most important thing you can do as a consumer of loan
products is to shop around and get several preliminary loan quotes for your
consideration.
These are no risk, no obligation, preliminary loan offers. They take 30
seconds to 2 minutes to complete, they require no personal or confidential
disclosure on your part, and they require no commitment from you.
We suggest that you obtain 3 or 4 offers. You can then examine and compare the
terms, rate, fees, and all other pertinent information about the loan
product, and the lender, at your leisure and in the comfort of your own home.
LoanResources.Net (http://LoanResources.Net) has categorized hundreds of
online services that you can explore. You can also go to any search engine
and find them from there. Look for a “privacy policy” on their website, as
well as short, simple application forms that make sense and are relatively
easy and quick for you to complete.
Also, take a quick look at the current interest rate for 30 year fixed loans,
as well as the 6 month trend graph. We have set up a free webpage with this
information, or you can find many graphs and charts via your favorite search
engine.
We’ve enjoyed providing this information to you, and we wish you the best of
luck in your pursuits. Remember to always seek out good advice from those you
trust, but never turn your back on your own common sense.
Sincerely, Webmaster Tom Levine
info@loanresources.net (mailto:info@loanresources.net)
http://loanresources.net (http://loanresources.net)
Copyright 2004, by LoanResources.Net
This article may be freely distributed so long as the copyright, author’s
information and an active link (where possible) are included. For more
information about mortgages, debt consolidation, credit repair, and all other
forms of consumer loan, credit, and debt products, please visit our website
at http://loanresources.net (http://loanresources.net) .
Tom Levine is the webmaster of http://loanresources.net (http://loanresources.
net) , and he can be reached at info@loanresources.net
Disclaimer: Statements and opinions expressed in the articles, reviews and
other materials herein are those of the authors. While every care has been
taken in the compilation of this information and every attempt made to
present up-to-date and accurate information, we cannot guarantee that
inaccuracies will not occur. The author will not be held responsible for any
claim, loss, damage or inconvenience caused as a result of any information
within these pages or any information accessed through this site.
Webmaster Tom Levine has been involved in insurance and finance for over 14
years, and provides a solid, common sense approach to solving problems and
answering questions relating to consumer loan products. His website seeks to
provide free online resources for the consumer, including rate-watch, tips
and articles, financial communication, and links to products and services.
You can check out Tom`s website here: http://loanresources.net (http://
loanresources.net), or you can email Tom at info@loanresources.net
(mailto:info@loanresources.net)
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