Name that mortgage!
March 7, 2008
What are the different types of mortgages?
It’s a simple question, but also a question first time homebuyers may not be able to answer. Here are some of the types of loans you may consider:
· A fixed rate mortgage. This means the interest rate offered by your lender will remain the same throughout the life of the loan. This is the most traditional of the various loans.
· An adjustable rate mortgage. This means your interest rate will start out at a certain percentage and can vary, and will most likely increase, throughout the life of your loan. If you don’t account for higher home payments over the life of your loan, you could get into trouble when your interest rate suddenly increases, thereby increasing your mortgage payment. These loans are often offered to those with lower credit ratings.
· A graduated payment mortgage. This loan starts out with smaller monthly payments, but increases over time. The graduated payment mortgage is geared towards those who may not have a lot of money to put towards a home now, but expect to have more money in the future. This could be a risky proposition if the revenue you anticipated doesn’t actually come through down the road.
The best thing to do when you are ready to purchase a home is to look for a first-time homebuyers class, like the class offered by Advantage Credit Counseling, a comprehensive housing counseling agency certified by the Pennsylvania Department of Housing and Urban Development. The class covers topics such as financing a home, qualifying for a mortgage, shopping for a home, the loan application process and the closing process.
The next home buying topic is debt-to-income ratios.
The housing crisis
March 5, 2008
I read a lot of news every day. One of the biggest stories of the past few months has been the housing crisis and the sub-prime mortgage mess.
In an attempt to put a human face on the housing problem, many newspapers and magazines have profiled people who have lost, or are in danger of losing, their homes to foreclosure. The thing I have found surprising is the public reaction towards the people who have been brave enough to share their stories and are willing to be a cautionary tale to others.
Most news outlets have an on-line comment section at the end of stories where the public can vent their thoughts and feelings. I say vent because that is what people seem to be doing. Anonymous posters unleash harsh rants about how these people who took out sub-prime mortgages are stupid and deserve what they are getting.
Who deserves to lose their home? Who hasn’t made a financial mistake in their lives? Who hasn’t been given bad advice?
So many people are unjustly harsh towards complete strangers who are in a terrible situation. Yes, it’s hard to feel sorry for some people. But, it’s also not necessary to have such hostility towards them either.
It seems to me that many of these people who are losing their homes weren’t trying to scam the system (as some have suggested). Conversely, they are people who didn’t understand mortgages or debt-to-income ratios and relied on lenders to give them the appropriate advice.
I liken this last point to me taking my car to the shop. I admittedly know very little about the inner workings of my car. I rely on my mechanic to tell me if something is wrong, how to fix it and how much it will cost. When I took my car to get an oil change last week, my mechanic said they changed brands of oil and launched into an explanation of how the new oil was just as good as the old brand, blah, blah, blah.
I quickly explained that I wouldn’t know whether he was using Texaco, Castrol, or Wesson in my car.
Naïve on my part, yes. But, many people looking for home loans are in the same boat, just on a much larger and much more financially dangerous scale. They assume their bank wouldn’t put them into a loan they couldn’t afford.
Many people will argue the old adage that ignorance is no excuse for the law, so keep reading over the next few days as I detail some important things potential buyers should know before they start looking for a home or talking to lenders.
The next topic is types of mortgages.
Pay attention to credit card limits
March 3, 2008
I recently read a story that surprised me regarding credit cards. Exceeding 50 percent of your credit limit can lower your credit score, according to an article on AllBusiness.com. It doesn’t even matter if you make all of your minimum payments on time.
Who knew?
I didn’t. And apparently many other people don’t know this little, but important, tidbit.
Hitting your credit limit can cause your credit score to plummet by as much as 100 points, according to the article. And, the best way to raise your credit score is to keep your balance below 30 percent of your credit limit.
Just because your credit card has a limit of $10,000, that doesn’t mean it is okay to charge, charge, charge … even if you are paying your bills on time.
Here are two other financial facts many people aren’t aware of. First, lenders can raise your interest rate on your credit cards without informing you. Secondly, other lenders can also raise your interest rate because of your lower credit score or if you miss a payment to a different lender. Yep, that’s right. Miss a payment to creditor No. 1, and creditor No. 2 can increase your interest, too.
AllBusiness.com recommends borrowers check their credit card statements every month. If you see an increase in your interest rate, call your creditor immediately and ask why your rate was raised. If your lender says it is because your credit score dropped, ask them to send you a copy of the credit report they used. If there are inaccuracies in the credit report, correct them by contacting the proper credit reporting bureau. If your credit score hasn’t dropped, call your lender back and demand a detailed explanation as to why your interest rate was raised. It is important to be aware that, as of now, banks can raise your interest rates without a cause.
Congress is beginning to look at lending practices and banking policies. In the meantime, borrowers need to be savvy about their creditor policies and keep close watch on their finances.
Anyone who is concerned about their credit card balance or is having a hard time making their payments should seek help. The certified credit counselors at Advantage Credit Counseling Service will guide you through a free credit counseling session and can offer suggestions to help you get back on track financially.
Call (888) 511-2227 or visit www.advantageccs.org to set up an appointment.
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