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Guidelines for
making a mortgage decision for purchasing property in CITY |
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Planned period of your
stay in the new property: |
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For example,
if you intend to live in the house for 7 years or less, you
may want to consider an intermediate adjustable with a rate
that is fixed for a 5 or 7 year period. Why give the higher
rate of a 30 year fixed when you don't have need of such long
term financing. Also if your time horizon of ownership is
7 years or less, it is advisable to opt for minimal closing
costs because your opportunity to recoup the price of high
closing costs is dramatically reduced. |
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List your current financial priorities
(i.e. cash flow, rapid repayment of the home loan)? |
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For example, if cash flow
is a top priority, an adjustable with varied payment options
may be your best bet. Some adjustable products agree borrowers
to choose from 3-4 payment options each month (i.e. interest
only, allowing for negative amortization, 30 year fixed rate
fully amortized or 15 year fixed rate fully amortized). This
allows a borrower to prefer a different payment option every
month based upon his or her monthly cash flow.
For others, the purpose may be rapid repayment
in which case a 15 year home loan may be considered or possibly
an adjustable rate with a lower rate of interest supplemented
by extra principal payments to retire the mortgage debt
early. With an adjustable vs. a fixed rate, your principal
reduction payments will manage to pay you a progressively
lower required monthly home loan payment as the mortgage
is recast and interest is calculated and your payment is
based on the existing home loan balance vs. the original
balance. With a fixed rate home loan your required payment
will remain constant over the life of the home loan, regardless
of any principal reduction payments you may make.
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List whether you anticipate any major
changes to your financial situation in the next few years. |
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For example,
do you anticipate receiving funds (stock options, inheritance,
sale of an asset) in the next few months or years that would
sanction you to pay down your home loan balance? If so you
may choose a home loan with an interest rate that is guaranteed
for a shorter term (i.e. an ARM with a rate fixed for 1-5
existence) reflecting the time frame from which you expect
to receive the funds. After this time you could refinance,
using these funds to pay down the balance on your existing
home loan or if you currently had an adjustable that is scheduled
to recast, you may just pay the balance down and enjoy a lower
monthly payment without refinancing. |
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Check recent credit
history: |
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If
you have outstanding credit, you may have question about home
loan products that are discounted for individuals with high
credit ratings. In addition to credit, some lenders will also
offer further discounts to borrowers who have high equity
in their property, usually considered to be 30-35%+.
For those having credit
blemishes, it is best to discuss your history openly and honestly
with your home loan consultant and to analysis your current
credit report together. The market for less than perfect credit
applicants (referred to as sub prime) has grown considerably
over the last few years offering competitive interest rates
and a greater variety of product options. For those planning
to improve their credit ratings, it is greatest to take shorter
term financing of 2 to 3 years, after which one can refinance
into "A paper" (the best) financing.
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Check your documentation: |
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If you will
not be able to adequately document your income, you may opt
for a quick qualifier, easy qualifier or no income verification
home loan. These products usually offer a trade off though,
the less documentation you are able to provide the higher
the interest rate will be. Some of these programs also require
a higher amount of equity in the property. There are also
programs that do not require authentication of either income
or assets (referred to as NINA mortgages). Each of these mortgages
could have higher interest rates and equity requirements associated
with them. |
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