How does mortgage help a prospective homebuyer?
April 24th, 2012
Following the subprime mortgage crisis, will you be able to rely on your mortgage broker? This is because the mortgage brokers were also a party to the subprime mortgage crisis and one of the main reasons that led to it was irregularities in subprime lending. Studies reveal that there were many mortgage brokers that forced borrowers to forge documents and escalate income levels to enable borrowers to qualify for a mortgage that they weren’t eligible for. What happened thereafter? The borrowers did take out a mortgage that exceeded their affordability but after few months, they started falling behind on payments and there were many that had to simply walk away from their homes.
So, if you are planning to take out a mortgage and you are not confident of yourself, you can undoubtedly take help of a mortgage broker but make sure he is reliable. It is also important for you to be aware of the terms and conditions; your lender is putting forth. It has been observed that borrowers that have fallen prey to the scam artists were none other than ignorant consumers. So, don’t allow yourself to be taken for a ride.
Mortgage has helped many consumers to own their dream homes. And depending on your affordability, you can take out a mortgage. There are few factors that should be considered before you take out a mortgage. They are as follows –
Are you comfortable with the loan term (15-year or a 30-year)?
You have to decide whether you will opt for a 15-year or a 30-year loan term. In case you are opting for the 15-year loan term, you have to make higher monthly payments but the rate of interest will be low.
When you opt for 30-year loan term, you pay lower monthly payments but the rate of interest will be high. You get more time to pay off your mortgage.
How much do you pay if you opt for ARM/FRM?
In case you opt for adjustable-rate mortgage, your monthly mortgage payments will be less in the first few years. But in ARM, the rates will change as per the prevailing rates in the market. Your monthly mortgage rates will also differ.
On the other hand, if you opt for fixed-rate mortgage, your monthly mortgage rates will be fixed and predictable. So, it makes it easier for you to keep plan out your financial obligations.
Does your income support the size of the mortgage?
Your income is undoubtedly an important factor that determines your affordability. So, it is important that you live within your means.
What is your debt-to income ratio?
Your DTI or debt-to income ratio is another factor that can help you to decide how much mortgage you should take out.
Mortgage can undoubtedly make you a homeowner but it is essential that you take into account the above factors prior to applying for a mortgage. In order to predict the exact monthly mortgage payments, you can use mortgage calculators that are offered by many websites online for free.