How to Choose between Different Types of Mortgages

With so many different types of mortgage available, it’s difficult to determine the right one for you. Before you start looking at available mortgages, however, it’s important to first evaluate your finances, as your financial situation is an important factor that will dictate the type of loan you need, and how much you can afford to borrow.

Step One: Evaluating Your Finances

Before you even think about the type of mortgage you should obtain, it’s important to evaluate your financial situation. Check your credit rating and FICO score, evaluate your income and debt level, figure out the size of the down payment you can afford, and determine how much mortgage you can afford and what your credit rating will allow you access to.

When it comes to your credit rating, know that between 620 and 699, you’ll probably pay a higher interest rate than if your credit rating is over 700, due to a slightly higher perceived risk on the part of lenders. If your credit rating is below 620, you may find it’s better to wait and improve your credit rating rather than be forced into a sub-prime mortgage with a high interest rate.

Step Two: Choosing the Best Mortgage

Once you have completed an evaluation of your financial situation, you’re ready to start thinking about the kind of mortgage you want. The mortgage that best suits you will depend on a long list of factors, not all of which are related to the amount of money you have for a mortgage. Think not only about how much mortgage you can afford, but also your credit rating, how long you plan to stay in the home, and whether you think your plans or financial situation might change in the future.

So what are your main mortgage options?

Fixed rate mortgage

 

Normally a 10, 15, or 30-year mortgage, you pay the same interest rate over the life of the loan.

Good for: If you like the security of paying the same amount every month and you’re planning on owning the home long-term, this is definitely the best option. There are some variations on this theme, including jumbo mortgages, which are larger-than-standard loans with a slightly higher interest rate.

Adjustable rate mortgage

 

These are mortgages with adjustable interest rates, which come in several different varieties. When you first get an adjustable rate mortgage the interest rate is lower than that you’d get with a fixed rate mortgage. However, at intervals, the interest rate can increase or decrease according to current market rates. This means your monthly repayments aren’t fixed, so these types of mortgages are more risky in comparison to fixed rate mortgages.

Good for: If you want a mortgage with an initial low rate and you’re prepared to take a risk on later rates (or you only plan to own the home for a few years), this may be a good prospect.

Interest-only mortgage

 

The standard type of mortgage is amortized, meaning your monthly repayments include both principal and interest. An interest-only mortgage is just what its name suggests – your monthly repayments don’t have to include principal (but you can pay off principal amounts at any time). This means you are not building up equity in your home while you’re only paying interest, but there are no pre-payment penalties.

Good for: This type of loan can work well if your income is at a consistent level overall but is subject to highs and lows, since you can pay off extra principal when you can afford to do so, and pay interest only when your income is at a lower level.

Balloon mortgage

 

This type of mortgage has a fixed interest rate and stable repayments over the life of the loan, with lower repayments in comparison to a fixed rate mortgage. However, the terms of the loan are generally short, with three, five, and seven years being the most common options. At the end of this time period, the entire balance of the loan is due. The final payment is typically very large, so a balloon mortgage is one which shouldn’t be taken lightly.

Good for: This type of mortgage can be a good option if you plan to stay in the home long term, want to get your mortgage paid off quickly, or if know you can afford the balloon payment. Alternatively, a balloon mortgage can be useful if you know you’ll be moving or refinancing before the balloon payment is due.

30-due-in-7

 

For the first seven years of the mortgage you have a fixed interest rate which is generally lower than that of a standard fixed rate mortgage. In the eighth year of the mortgage, the interest rate changes to be in line with whatever the current rate is at that time. For the remaining 22 years of the mortgage, the interest rate stays fixed at that rate. Another option is a 30-due-in-5 mortgage, where the interest rate changes in the sixth year.

Good for: These mortgages can be a good option if you’re planning to stay in the house for more than five or ten years and you are willing to risk the possibility that your monthly payments may change substantially when the second interest rate is due.

About the Author

Rachel Jackson is a freelance writer who writes about topics and pertaining to the mortgage industry such as refinancing home mortgage.

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Why You Want Bird Dogs Finding You Deals

Whether youre a novice real estate investor or youve been at it for years, real estate investing is an endless series of challenges. First, you have to locate motivated sellers. Then you have to buy it right, manage it even better, and still find a way to turn a profit. To top it off, you have to try to do all these things while simultaneously juggling the myriad other details of your life while laying the groundwork to become a full-time investor.

There just isnt enough time in the day, is there

Wouldnt it be nice if profitable deals would almost magically come to you

Actually, they can.

By putting Bird Dogs to work for you theres more time for you to concentrate your energies on more profitable activities: negotiating with sellers, putting together winning proposals, and moving on to the next deal.

In case youre not familiar with what a bird dog is, or what a bird dog does, they are basically scouts that sniff out deals for you. Their sole job is to locate properties that have motivated sellers and lay the groundwork for you to move in and close the deal. This saves you time for the really profitable aspects of real estate investing.

Without motivated sellers you cant put together real estate deals. The problem you have is there are only so many hours in the day for you to do everything that needs to be done. If you still have a full-time job working for someone else you have even less time available for your marketing and prospecting efforts. If you assume that marketing, of which locating motivated sellers is a critical part, takes 20-25 of your time, you can easily see how little time that leaves for the other activities you need to be doing on an on-going basis to reach your goals.

By having a bird dog or bird dogs doing these things for you it allows you to better utilize the time resources you have at your disposal. A good bird dog isnt born: theyre made. Its going to take a little effort on your part to help your bird dogs help you. The best way for you to do this is by clearly articulating to them what you need.

The good news is that there are plenty of people willing to be bird dogs. They could be friends, family members, or others you come in contact with. You can also work with novice real estate investors through your local REIA to locate properties for you. Its also relatively easy to put together larger teams of bird dogs by utilizing message boards, Craigs List, and other online resources. If all else fails you can run a newspaper ad of your own. The main point here is that bird dogs will free up more of your time so you can do those things that have a greater probability of earning you money.

Bird dogs can be the path to your real estate investing goals. The finders fees youll pay your bird dogs for bringing deals to you are more than offset by the value, and the wealth, theyll generate for you. Take the time to learn how to work with bird dogs in reaching your investing dreams. As you get better at working with bird dogs youll find that you have more time and money for other pursuits, like deciding what to tell your boss when you quit your full-time job and take the plunge into full-time real estate investing.
About the Author

Although one can make quite a bit of money in this business, if not done correctly, one can lose it all also. To learn the secrets from a real pro in the game go to

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