Finance

Whether you choose to buy or build, you will have to consider how to finance your home. Basically, there are four options: pay cash, secure a mortgage from a lending institution, assume the seller’s mortgage or arrange a land contract with the seller. Wisconsin lenders offer a variety of mortgages to meet every lifestyle – including adjustable rate mortgages, which offer lower interest rates for homeowners willing to take some additional risk, and traditional 30-year, fixed-rate mortgages for people who prefer the security of knowing what their monthly house payments will be.

Given 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. These lending arrangements are also more common when interest rates are high. They can be risky, because ownership often automatically reverts to the seller if payments are missed.

Buying a Home

Many lenders have on-line 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. The above 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.

The following websites offer rate information and mortgage calculators:

Associated Bank                   www.associatedbank.com

Bank Mutual                         www.bankmutual.com

The Equitable Bank              www.theequitablebank.com

Waukesha State Bank           www.waukeshabank.com

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