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Now
that you have a general
knowledge of what you should
borrow,
the different types of equity
you could gain,
and who will control
the bill paying,
it is time to talk about home loans.
Get
your shopping cart, or should I say
shopping-chart, ready.....
A
loan officer is often the
first team-player to draft. If you don't have to
borrow money to build your home, then you can skip parts of this
section. However, there are some interesting topics that you may
not want to overlook.
You
may already have a good
relationship with a loan officer that has a great loan
package available. If so that’s great, but if you are like
us--we had to start from scratch.
It
is up to you and your mate to...
...shop
around for best loan that suits you financially.
Before proceeding on to find a lender, you will need to know the
differences between the types of loans that are available.
There
are several different types of loans available for financing
your new home. However, in order to keep matters simple, we are
only going to briefly discuss two:
Construction
Loan
Mortgage
Loan
A
construction loan is a temporary
loan utilized to pay all costs of labor, materials and
services...
...a
"Mortgage Loan" is
a permanent loan that will be used to pay off the construction
loan after the home is completely finished. The type of this
loan you choose depends greatly upon the variables of the loan
that will best suit your budget and financial strategy.
Some
lending institutions offer
both construction and mortgage
loans, where others may only have one or the other. You will
also need to know the
differences in the types of mortgage loans available.
There
are also several of different types of...
...mortgage
loans offered on the market.
Because
each loan package can vary
greatly, you will want to
obtain as much information as possible in order to find the
mortgage that benefits your financial situation the most.
Finding
the right mortgage, as well as mortgage institution,
may take some time and research. Make sure you obtain
information from a reliable and proven source before making this
very important decision,
as...
...you
could be talking thousands of dollars in
differences from one loan to the next over the
period of your mortgage.
For
example, let's look at the differences between the following two
popular home mortgages: Conventional Mortgage or Adjustable Rate
Mortgage (ARM) loans.
A
"Conventional Mortgage" has a fixed
interest rate, meaning, your interest rate
will never increase or decrease for the duration of your
mortgage.
If
you choose to go with this type of mortgage, and the interest
rates are good at the time of your loan application, you
may want to consider "lock-in", or commit, to their
current interest rate right then.
When
you "lock-in" to
an interest rate, your lender is committed to giving you a
mortgage at the interest rate based on the Annual Percentage
Rate (APR) at
the time that you apply for your mortgage. Take...
...
Caution
You
need to make a "WISE"
decision as this can either work for or against you,
depending upon the fluctuation of the interest rates. In
addition, some loan institutions will charge extra points, or
fees to "lock-in" and it could end up costing even
more over the duration of your loan.
For
example: The Good News...
...would
be to lock in at an interest rate of 5.25% APR and
the next day the interest rate jumps up to 7.75% APR and...
the
bad news is...
...
if the interest rates fall 2 points it could cost you quite a
bundle with just that difference. It's
like investing in the stock market--you have to keep
your eye on the economy and try to make an informed decision.
An
"Adjustable Rate Mortgage" means
just that: the interest rate changes or adjusts along with the
rise and fall of the ever changing interest rates.
You
will have to do some heavy duty research to help you decide
whether or not this type of mortgage fits you.
The
Good News...
...is
that this mortgage works well for the borrower if the
interest rates are high, at the time the loan is taken out, and
take a steady decline.
The
bad news is when...
...Interest
rates keep climbing up and up, which also can
increase amount of your monthly payment. If you are on a tightly
fixed budget, this mortgage may be too risky for you.
You
should discuss all loan details with your lender, as each
lending institution has their own policies and loan
packages.
Our
Personal Story:
Deciding
on a mortgage was a difficult decision for us too. We had to
weigh heavy on how each loan would best suit our interests and
save us the most money, both
at that time and into the future.
My
husband and I chose to "lock-in" to an Interest Rate
for several reasons:
The
interest rates were steady at the time and were not expected to
go down.
We
were on a fixed budget and wanted to be able to have control
over our monthly expenses.
My
husband and I are simply not gamblers and felt better having
the security of locking into an interest rate on that day.
The
next reason will be discussed in the next section:
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