Financing is one of the most important considerations in buying a home. I recommend that buyers complete the loan process before they begin shopping for a home. There are a number of direct benefits from the pre-approval process.
First and most importantly for many of my past clients....you can minimize the anxiety of the unknown. Once the loan is fully approved you can eliminate any worries or concerns....I guarantee you this is a huge relief for everyone involved.
Second, you look at homes in the right price range and avoid the disappointment of pursuing a home that is out of reach or making unnecessary compromise.
Third, when you are ready to present your offer, it will have more credibility and receive more consideration from a seller. This can prove most valuable in competitive situations in which two buyers make an offer on the same house.
And last....and as important as any reason you are able to close more quickly which will provide help in securing a particular property where the seller may be under pressure to move.
Whether you are well acquainted with the home buying process in the Memphis market or you're looking for your first home, my team of experts can provide you with all the necessary tools and lending products. Feel fee to access my online mortgage calculators to get an idea of what your projected payments each month will be based on with sales price and down payments. It will also provide you a review of the financial advantages of purchasing your residence versus renting.
If you have any questions, please feel free to call me at 901-604-5838 or click here to get in touch with one of my team today. They will be glad to give you valuable information without any obligation or to compare numbers with those of competing mortgage or home loan lenders.
Common Financing Options
There are literally hundreds of loan products available and it is difficult to examine all options on your own. When you work with me and my team we will typically guid you in the selection of a loan program that they best for you. Take a look at the many different options below to get an idea of what to expect:
FIxed rate mortgages are the most commonly used loans in the market. Choose a Fixed Rate Mortgage if you:
-Plan to remain in your home for a substantial period of time
-Like to know the exact amount of your monthly payment
When you choose a fixed rate home loan, your payment amount and interest rate will be guaranteed for the life of the loan – a period which might be 15, 20, or 30 years, depending on the loan you choose. If you choose to make extra payments toward the principal of your loan (in addition to your monthly minimum payments), you will be able to pay off your loan faster with no additional interest penalties.
Timing is everything when it comes to fixed-rate mortgages. If interest rates are high (or if your credit score dictates a higher interest rate), your rate will not change until the expiration of the loan, or until you refinance. However, if you apply at a time when interest rates are low, you're guaranteed a great rate no matter how the market fluctuates.
Here are some advantages and disadvantages to the different terms of fixed-rate loans.
15-Year Fixed Rate
Advantages: The loan will be paid off in half the usual time, an advantage if you plan to stay in the home for many years. The amount of interest you'll pay is far less than on a 30-year loan.You'll build equity more quickly as the principal is paid down.
Disadvantages: Higher payments may be a deterrent for some people.
If you lose your job or your income changes, it may be harder to make these high payments.
20-Year Fixed Rate
Advantages: The loan will be paid off in 2/3 the time of a standard 30-year loan
The amount of interest you'll pay is far less than on a 30-year loan
You'll build up equity more quickly than with a 30-year loan
Disadvantages: Higher payments may be a deterrent for some people
If you lose your job or your income changes, it may be harder to make the high payments.
30-Year Fixed Rate
This is the most common type of fixed-rate loan. It's also one of the easier loans to qualify for, especially for first-time homebuyers.
Advantages: Lower monthly payments than with 15- or 20-year mortgages.
Maximum interest deduction for tax purposes
Disadvantages: Equity builds slowly, a disadvantage if you plan to sell within a few years.
Adjustable Rate Mortgages (ARMs)
If interest rates are very high at the time you're applying for your mortgage, if you expect your income to increase substantially within the next 12 months, or if you're comfortable taking a risk with your monthly payments, an ARM may be for you.
ARMs are useful for owners who plan to own their properties for only a short time, as they can potentially cut down on interest payments. Generally, interest rates on ARMs are lower upon the inception of the loan that rates for fixed-rate loans. The interest rate on your ARM is tied to the prevailing interest rate, plus two to three points. Which index determines this rate will depend on your loan: indexes include the Certificate of Deposit Index, the Cost-of-Funds Indexed ARMs, the Treasury or T-Bill Rate, and the London Interbank Offered Rate (LIBOR). When interest rates on these indexes rise or fall, you can expect your monthly payment to respond accordingly.
As we have seen recently with the sub-prime mortgage crisis and the subsequent string of foreclosures nationwide, buyers who choose ARMs must be prepared for large spikes in their monthly payments if they intend to carry the loan past the duration of the initial interest rate. Ask your lender to calculate the maximum possible amount of your monthly payments based on your rate index and your rate cap (the maximum amount of interest you can be charged based on your loan agreement). If you're not comfortable making the maximum possible payment for a period of up to one year, you should choose another loan package.
Here are some advantages and disadvantages to the different terms of fixed-rate loans.
Advantages: Since initial interest rates are lower than with fixed-rate loans, you may qualify for a larger loan – and therefore a more expensive home. Lower interest rates can save you money in the short term, especially if you plan to sell within a year or two.
ARMs are easier to qualify for than fixed-rate loans, and may be a viable only option for buyers with poor credit. Monthly payments are much smaller during periods when indexed interest rates are low.
Disadvantages: Spikes in interest rates may cause monthly payments to increase dramatically, often with little or no notice.
Convertible ARMs
Convertible Adjustable Rate Mortgages combine the more appealing qualities of both fixed rate loans and ARMs. Convertible ARMs offer the initial low interest rates of a traditional ARM, but convert to a fixed-rate mortgage at a pre-determined rate after a specified number of years.
VA and FHA Loans
Government loan packages can be a tremendous help to first-time homebuyers, to people with lower incomes, or to veterans.
VA Loans are offered to veterans by the Veterans' Administration. There are limits to the amount that can be borrowed, so this option works best for those purchasing low- to moderately priced homes.
FHA Loans are offered through the Federal Housing Administration. Most applicants will have to meet income standards to qualify. Also, you will need to look for homes that state '"FHA Approved" in their MLS listing or print advertisement. Some states also offer accessible home loan programs to lower-income individuals and families; ask your real estate agent for more information.
Get the Best Rate on Your Mortgage
Comparison shopping doesn't just apply to cars and electronics. You can – and should – shop around for your mortgage as well. Different lenders offer different products, and often have different qualification criteria. You deserve to get the best possible rate on your home loan, so don't be afraid to research a number of lenders until you find a package that works for you.
There are two ways you can find your best loan and rate. You can shop on your own, or you can employ one of my trusted mortgage brokers whom I work with daily.
Thomas Bryan
Delta Trust Mortgage
Phone: 901-292-3213
or
Wendy Thompson
Patriot Bank
Phone: 901-461-8858
