Financing for real estate needs planning and careful investment plans so that you can lay hands on the right property that you desire to possess and can afford. However, it is not as easy as it might sound to be. Analyze the market before you take the plunge. Financing, if done in the right manner, can get you the dream property. All it needs is to learn a few tricks.
How do I know that I am eligible for a real estate loan?
Your real estate agent will have the information on lender loan requirements and will calculate a rough monthly figure you can afford. This will be according to the maximum monthly payment for the loan, taxes, insurance and maintenance fees. This way, you will be able to save time from considering and re-considering properties which you cannot afford. Lenders also regularly calculate what you can afford and can pre-qualify you for a loan even before your search begins.
This will enable you to know exactly how much you can afford to buy. Lenders generally specify that you spend no more than 28 percent of your gross monthly income on a mortgage payment or 36 percent on total debts. But, besides your gross income and outstanding debts, there are other factors which will determine the price you can afford to pay for a home. These include:
- The amount of cash you have available for the down payment
- Your credit history
- Current interest rates
- Closing costs and cash reserves required by the lender
- The type of mortgage you choose
What can I do to avoid effects of interest rate-market fluctuating constantly?
Well, you can lock in the mortgage rate. The interest rate market is never constant and is subject to frequent changes without notice. Keeping this in mind, it is actually a good idea to lock in a mortgage rate with a lender. This will protect you from the time your lock is confirmed to the day it expires. It is recommended for the time when borrowers expect rates to go up during the next 30 to 60 days, which is generally the amount of time a lock-in remains effective.
A lock-in at the time of application really helps as it may take the lender several weeks to prepare a loan application. Get ready to cough up a few dollars more, for some lenders might ask for a lock-in fee to guarantee both the rate and the terms. If your lock-in expires before you close on the loan, most of the lenders base the loan rate on the current market interest rates and points.
When can I go for refinancing?
The general trend is to refinance while mortgage interest rates are low, especially when the rates are about two percentage points below their existing home loans. The time of financing will depend on how long you plan to hold on to your home and whether you have to pay considerable fees to refinance. It will also depend on when you are paying off your current mortgage.
Is there any Tax Benefit?
You may be able to slash down the interest you pay on the mortgage loan and some of the financing costs of the home. Your property taxes could be deductible. Consult your tax advisor to know more in details.