Comparing mortgage options for buying a Bay Area Home
Before applying for a loan, you should consider the advantages of owning a home and factor those advantages into your decision. For instance, home owners can deduct the interest and local property tax of their mortgage payments on their federal tax return. Therefore, the amount you owe the government each year at tax time will be reduced. In addition, unlike renting, you build equity. Therefore, instead of sending a check to the landlord each month, you are essentially sending a check to yourself and increasing your net worth and equity with each mortgage payment.
Your mortgage is a number dependent on the size of the down payment, the cost of the home, the interest rate, and loan fees. Most mortgage payments require the borrower to make a monthly payment that will pay off part of the principal, the interest, the taxes, and the home owners insurance. Obtaining a mortgage usually depends on your credit score and the amount of your down payment.
Mortgages usually consist of two types of interest payment options: fixed interest and adjustable rate. Fixed interest loans have a fixed percentage attached to them that does not change for the life of the loan, and they can be as long as 30 years or as short as 10 years. The longer the fixed interest mortgage, the higher the monthly payment, but the lower the interest rate. Adjustable-rate Mortgages (ARM) have an initial fixed rate for either 1, 3, 5, or 7 years but amortize, or is paid off with monthly mortgage payments, over 25 or 30 years. According to some lenders, ARM loans are good for those who are interested in borrowing more money than a fixed-rate loan will provide, think interest rate with decrease, or will sell the home after the fixed rate period is over.
There are also options for potential homeowners whose needs are not met by the fixed-rate and adjustable-rate mortgages. There are programs for borrowers with poor credit scores, 0% down options, Government home loans from the Federal Housing Administration (FHA loans), and loans from the Department of Veterans Affairs (VA loans). Zero% down payment options are a great alternative for potential home owners in the San Francisco Bay Area where the price of the home is well-above the national average, and coupled with closing costs the price can make home buying prohibitive. Depending on your credit score (though it does not have to be perfect), you can get up to $800,000 towards your home. FHA loans were created with low-to-moderate income potential homeowners in mind, and VA loans are for veterans and active military personnel and have the same low down payment and flexible qualifying rules as FHA loans.
Buying a home is an important decision, but especially in the Bay Area understanding the financial commitment is the most important aspect of purchasing a home. It is usually the largest investment people make, and it is a dream for most people, but being financial responsible and prepared is the first step in turning your dream into a reality.
