Wednesday, May 12, 2004

What to know about mortgages

As home construction continues to be strong on this side of Atlanta, a couple of facts should be fairly obvious:

• Tens of thousands of people are arriving, and expected to continue arriving in the next few years, to occupy these homes.

• Those people will need access to hundreds of millions of dollars to purchase their homes.

And while many people are fretting over a first-time home purchase or whether to move up to a bigger house, there are those who are content to simply stay where they are but looking to make their situation a bit more attractively financially.

Mortgage experts in Fayette County deal with all of these questions, and more, every day. As famiies make preparations for what is possibly the biggest investment of their lives, these professionals sort through the jungle of numbers to help clients find the most housing bang for the buck.

Interest rates are fairly low, and have been for several years. That in itself would seem to make buying a house extremely attractive. But there's a lot more to it than that.

Unemployment rates, the economy in general all sorts of factors are considered when mortgage rates are established.

A common mistake made by many customers is assuming that whenever the Federal Reserve lowers its rate, everything else drops as well. That’s not always the case, and mortgage rates can occasionally go up a bit.

A soft labor market and slightly higher unemployment figures can trigger a decrease in mortgage rates.

There has been a lot of refinancing in recent years but there is no single refinancing method that works for everyone. One common rule of thumb among mortgage professionals is that if the current rate is 1 1/2 to 2 percent lower that your rate, and if yours is fixed, then refinancing is worth at least looking at.

But going through the refinancing process is not free, and customers should remember to include those costs when figuring out how much money will eventually be saved. Otherwise, you're just eating up equity.

Another way many customers take advantage of favorable interest rates is by switching from 30-year mortgages to 15 years without an increase in monthly payments. Others will go up slightly in house size without their payments going up.

Lower rates also make it attractive for people to get out adjustable rate mortgages and balloon notes, allowing people to recover from possible financial problems of past years.

If you’re shopping for a home, you can save yourself a lot of wheel-spinning by taking a minute to figure out how much mortgage you can afford.

Of course, a great deal depends upon interest rates, which some say are currently at their lowest in 40 years but could go back up at any time, according to experts. But some guidelines are fairly standard.

One way to find out how much you can afford is by calculating how high your monthly payment can go. Generally, a lender will want your monthly mortgage payment to total no more than 29 percent of your monthly gross income before taxes and other deductions are taken out according to the U.S. Department of Housing and Urban Development's Web site (www.hud.gov). From there, obviously, the lower the interest rate, the more expensive the home you will be able to afford.

HUD has a considerable amount of information on its Web site about buying a home. You can download a small booklet entitled “Looking for the Best Mortgage: Shop, Compare, Negotiate.” It has information about what various mortgage-related terms mean, what to ask prospective lenders, and more.

You’ll want to compare all of the costs involved in obtaining a mortgage. Shopping, comparing and negotiating may save you thousands of dollars.

Many real estate professsionals, including some in Fayette, have mortgage caculators and other helpful tools built into their Web sites to make the process even easier for customers.