DiscoverMilwaukee2017 - page 67

iven the competitive nature of the
mortgage business, banks and
other lending institutions are
offering a variety of mortgage products
that have made home buying simpler.
Mortgages come with either fixed or
variable interest rates. Fixed rates are
typically one or two percentage points
higher than variable rates, but the interest
rate remains constant throughout the life
of the loan. Variable or adjustable rate
mortgages (ARMs) increase and decrease
with the prevailing interest rates. These
can be great bargains in good economic
times, but can become expensive if
interest rates jump. Variable rate
mortgages are best for homeowners who
expect interest rates to decline, plan to
stay in their home five years or less, or
are confident their income will increase in
the years ahead. To protect homeowners,
variable rate loans have “caps” that limit
how much the interest rate can increase.
Home buyers sometimes assume the
existing mortgage or enter into a land
contract with the seller. These financing
arrangements are more popular when
interest rates are high. Not all mortgages
can be assumed, however, and the buyer
is typically required to pay the seller cash
for any appreciation in the home’s value.
With land contracts, the seller acts as the
lender and retains ownership of the
property until the debt is paid off. They
can be risky, because ownership often
automatically reverts to the seller if
payments are missed.
Buying a Home
Many lenders have online worksheets
that can help you determine how much
house you can afford. Generally speaking,
house payments – including insurance
and property taxes – should not exceed
28 percent of the household’s gross
monthly income (income before taxes).
Total household debt (including credit
cards, mortgage, auto and other loans)
should not exceed 36 percent of monthly
income. Homeowners who cannot afford
to make a down payment equal to at least
20 percent of the sales price will likely
have to purchase private mortgage
insurance, which can add $50 to more
than $200 to the monthly payment. This
information is meant only as a general
guide. Homeowners should consult a
Realtor or a mortgage banker before
making a final determination on what
they can afford.
Mortgages are available through
mortgage brokers, banks, credit unions
and savings banks. Whether you elect to
work directly with a lender or through a
mortgage broker, it is a good idea to get
“pre-qualified.” This will help you
definitively ascertain how much you can
afford and will give you a competitive
advantage with sellers (because you can
present them with a document
demonstrating that you will be able to
pay the amount they are asking).
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