One of the first steps before you start looking for your dream house is to ask yourself what you can afford to spend on a monthly house payment. Keep in mind when financing real estate that the lenders will be able to tell you only what you MIGHT be able to afford based on your salary and level of debt including any credit card debt. As the real estate market continues to grow and new technology gains ground, widely accepted beliefs that were true just a few years ago may not be true today.
You want to work with your mortgage broker or lender to develop an individual loan or mortgage program based on your credit worthiness. Your property taxes may be deductible. Consult with your CPA or other tax advisor for current tax information. With an adjustable rate mortgage the initial interest rate is usually lower than with a fixed-rate mortgage and the monthly payment will also be lower.
If you're on a fixed income, an adjustable rate mortgage (ARM), especially a short-term ARM, may not be your best choice. And some lenders may impose limits on how much of your down payment can come from borrowing from other sources. Real estate financing is unique for each buyer.
If you're buying a second home or second property, you'll need to identify the sources for your down payment, since you'll not be selling your current house and using the proceeds. Expect a larger monthly payment for housing or other expenses too. Most adjustable rate mortgage programs do offer "rate cap" protection, which limits the amount the rate can be increased - each year and over the life of the loan. All adjustable rate mortgages are amortized over 30 years. Check with your CPA or accounting professional - you may be able to deduct the interest you pay on the mortgage loan and some of the financing costs of the home, like the points on your income tax return.
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If you do borrow money for a down payment it must be disclosed to the lender or if any of your money for your down payment was a gift, be ready to provide proof for it. And the interest rate for an adjustable rate mortgage may be adjusted up or down at predetermined times; then the monthly payment will increase or decrease. The disadvantages of a fixed-rate mortgage include a possibly higher cost because these loans are usually priced higher than an adjustable rate mortgage.
Advantages of adjustable rate mortgages include: lower costs - because they're usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. And if the interest rates go down, you'll have lower payments. Usually an adjustable rate mortgage is the best choice for homeowners who are purchasing their first home and plan to be in the property for only three to five years or for those people who plan to relocate in the same period of time.
Make sure to get lots of advice about real estate financing, mortgages, interest rates, mortgage rates, mortgage refinance, bad credit mortgages, etc., and think about what makes sense to you. Thinking positive about your real estate financing is important but so is being realistic. Before you finish your real estate financing read every real estate contract and loan or home mortgage contract thoroughly before you sign on the dotted line; every line is important. Look for anything that is not specific or vague. And don't be afraid to question what you don't understand.
