Traditionally, when purchasing a home, most people take out a 30-year mortgage. But recently, the federal government has introduced new loan options that make it possible to extend the loan over an additional 10 years, making the total pay off period 40 years.
If that sounds like a huge amount of time, take a few moments to consider the following facts:
A 40-year loan lets you get into a house now, not wait until your earning potential increases.
Just because you take out a 40-year loan does not mean you have to stay with a 40-year loan. You can easily refinance in a few years.
You may opt to sell the home in a few years. Getting into a home now allows you to begin building wealth in home equity. When you sell your home, you can take the profits and invest in your next home, with a standard mortgage term loan.
What does a 40-year loan offer? Simply put, with a 40-year loan you can afford to buy more home with less income. Using an average home price of $200,000 and interest rates today, a 40-year mortgage means have almost 5% more home buying power with the standard income/debt ratio than they would with a 30-year loan.
This mortgage option also gives buyers a little more flexibility. Many buyers would have had to consider interest only loans or adjustable rate mortgages. As the national interest rates increase, adjustable loans and interest only loans can quickly catch unsuspecting buyers in a position of being forced out of the home. Their monthly payment increases as interest rates increase, increasing over their allotted budget.
If you are confident in your wage earning potential and the possibility that it will increase over time, you may want to consider some of the programs that are combined with the 40-year mortgage. This mortgage option is available as a hybrid loan. Meaning you can combine the 40-year loan with another loan program, like interest-only or adjustable-rate loan.
Owning a home is a dream of many people. It not only makes sense because it gives you an opportunity to stop paying rent to a landlord, but it starts you on the path to investing your money in your home. Owning real estate is the number one way that people save money and it is now possible to save money even if your income is slightly lower than traditional home buying rates.
Talk with a mortgage consultant to day and discuss your options. You may be surprised at just how affordable it is to buy a home.
The writing has been on the wall for a good while, yet many have been reluctant to read what it says. Many residents of the United States are getting deeper into debt. Part of this debt likely comes from the cost of owning a house. For a larger segment of homeowners, the cost of home ownership is forcing a tough situation into an impossible one; creating a “foreclosure crisis" that will likely last quite some time.
Several months ago, current data released by the Government are showing an alarming growth in the rate of foreclosures. In some areas, of all home owners who were extended sub-prime loans, the rate of default is as high as 14-20% when 4-6% is considered “healthy".
This data has been all over the news �" the stock market has been in upheaval. Sub-prime lenders traditionally specialize in extending financing to borrowers with credit issues, unable to verify income, job status or other factors that make them a poor fit for conventional loans. In the last year, many major players in the sub-prime market have sold off operations or in some cases simply closed their doors and gone out of business. Just as their borrowers were unable to afford the escalating home ownership costs, many sub-prime financial companies found it impossible to absorb the rate of default we are now seeing.
The major issue doesn’t stop with the sub-prime market. Even traditional lenders are tightening purse strings and placing more scrutiny on the loan approval process. This makes us wonder: how did this problem with foreclosures ever happen in the first place?
A good deal of blame can be laid at the feet of the homeowners themselves. In this age of "big is best" many Americans see a large home as an indicator of success. This pushes many buyers into trying to buy a larger, more expensive home without enough thought to the affordability of one. Often buyers push how much they can afford and end up in a difficult situation or worse.
Blame can also be laid at the feet of some financial professionals. Who is better informed as to how much house debt a borrower can afford? The current debt-to-income ratios are either being ignored, or the types of loans that lenders are selling are poor choices. Loans like 28/2 and 27/3 loans with fixed teaser rates that adjust after 2 or 3 years with a balloon or margin are just a few of the loans that have created difficulties for home owners.
Of course the resolution of all of this will be better qualified and better educated homeowners but did things really have to go so far? We've seen foreclosre problems hit most of the large regions we work including St. Charles real estate, Naperville real estate and Yorkville real estate. Frankly, I sometimes think they did. Lately it seems like it takes a big shock to get some things to go right. In the mean time, if you are thinking of purchasing real estate in the next few years, it’s important that you start talking with your local REALTOR or financial professional and make sure your finances and credit scores are in order before you continue with applying for a loan.
Both Jeffrey Nelson & Eric Rogers are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Jeffrey Nelson has sinced written about articles on various topics from Debts Loans, Marketing and Real Estate. to get a free copy of Jeff Nelson's, "7 Tips to Avoiding the Biggest Mortgage Mistakes," a 10-page report that describes the mistakes to avoi. Jeffrey Nelson's top article generates over 33100 views. to your Favourites.
Eric Rogers has sinced written about articles on various topics from Home Buyers Guide, Real Estate and Home Buyers Guide. Eric Rogers is a full-time agent with Century 21 Pro-Team in the Fox Valley.. Eric Rogers's top article generates over 4400 views. to your Favourites.