Top Things to Consider on home Loans

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

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:

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 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
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 .

Tom Levine is the webmaster of 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.

About The Author

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, or you can email Tom at info@loanresources.net

Cocodrilo · Joined: 30 Jul 2004 Posts: 3 Location: Kurashiki, Japan

I have never purchased a home while I was living in the United States and was kind of wondering the length of the average loan nowadays. I believe my Mom said she had a 25-year loan(as do I!). In Japan, the norm is 30 years and recently, as long as 35 years. This is odd, as you average first-time homeowner in this country is 36, meaning the people are going to be paying off their loans into their 70's. This is scary- would the pension plan cover their mortgage payments?(doubtful) Would they croak over before the loan is paid off? (very likely) :shock:

Also, the average home here is close to $300,000. (This is not in urban areas, mind you!)
If people go the cheap way and build a pre-fab house(common here), which has a lifespan of 25 years at average, what if the thing falls apart before the loan is paid off?

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

There are 2 main loan types: 30 year and 15 year

tubgirl · Joined: 22 Jan 2005 Posts: 15 Location: IN A BATHTUB

Hello fellow Kansai dude! Kurashiki ne? Momotaro rocks.

Typically we have 10, 15, 20, and 30 year mortgages. Recently, a few banks have started 40 year terms.

Kyotsukete ne...

David · Joined: 19 May 2004 Posts: 754 Location: Atlanta, GA

tubgirl wrote: Hello fellow Kansai dude! Kurashiki ne? Momotaro rocks.

Typically we have 10, 15, 20, and 30 year mortgages. Recently, a few banks have started 40 year terms.

Kyotsukete ne...

That's good to know.

Cocodrilo · Joined: 30 Jul 2004 Posts: 3 Location: Kurashiki, Japan

Actually, Kurashiki is NOT in the Kansai area(1 hour by Shinkansen west of it, as a matter of fact), but the land prices here in the downtown area, where I purchased property, are just as high...Most of my friends have 30-35-year loans and, seeing that they've bought their homes when in their mid-30's, will be paying the damn things off until way after retirement! Although our monthly payments are very high (as both my husband & I have our own businesses, thus we do not get the bi-annual obligatory "bonus" like most salaried workers do in Japan) we opted for the 25-year loan. Only 11 years left to go, heh heh!

tubgirl · Joined: 22 Jan 2005 Posts: 15 Location: IN A BATHTUB

I know it is not the "kansai" area (kobe/osaka) but somewhat close. I used to live in Takarazuka(Hyogo) and in Matsuyama(Ehime). I know the area well. I just consider Western Japan the same for me. It's MY geographics. LOL.

Well, I don't know about loans in Japan but in the USA you can(depending on lender) make bi-weekly payments and reduce your principle by a substatial amount and pay off your loan years ahead of what you would have. Here is a link to a bi-weekly calculator.

Ganbatte.

gciwo · Joined: 06 Oct 2007 Posts: 4

Thanks or useful article.