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How to Refinance or Purchase Your Home Safely

The first most important thing when refinancing your home is to know what type of loans are out there. There are many types of loans out there but there are three particular ones to be weary of.

Interest Only Loans
Interest Only Loans are great products for people who need the lowest possible interest rate and do not plan make this their retirement home. Or great for military families who can only live in the property for a year or two then will eventually relocate.

The problem with Interest Only Loans is when a consumer gets to comfortable, with the low interest rate and seems to let to much time go by without refinancing into a fixed rate.

A. Interest Only loans take your monthly Mortgage payment and apply it only towards the interest for the first 5 to 10 years depending on what your Mortgage Note States. This means your balances stays the same until that period is up.

B. In many cases once your interest only period is up this also means your mortgage interest rate could go up. Which interns makes your mortgage payment go up and if you are not prepared for this drastic change it could cause major financial problems.

C. The main thing you should remember is, taking a interest only loan decreases the amount of equity you put back in you home. Also it increases your chances of having to refinance quickly before seeing a drastic change in your rate and mortgage payment.

Negative Amortization Loans
These Loans are similar to Interest Only loans but instead of your Mortgage balance staying the same your balance actually increases over time. In many cases your Mortgage payment is applied on top of your principal balance of your mortgage. These loans also come with lower rates to entice you to take them, but after your period is up your payment and rate could also go up. These type of loans are also equity eaters. You are supposed to eat from equity don’t let it eat you!

Adjustable Rate Loans
These loans again entice the customer because they start off with a low interest rate and eventually could rise once your adjustment period is up. Now if your credit is not great and this is your only option make sure you try to get at least 5YEAR ARM which will give you 5 years before you adjust. Within that time you could repair your credit and refinance your home into a fixed rate.

Fixed Rate Mortgage Loans
These are great loans to go after because your rate and payment are not subject to change in most cases. If you are refinancing into a fixed rate loan and you have paid into your home for more than a year or two, make sure you try to get some term reduction on your loan. This way you are not starting all over into another 30 year term.

Always ask your lender what will my ammortization schedule will look like over the course of my loan period. In other words how much will I be paying down on my mortgage each year of my term. This will give you a better outlook on how much equity you will personally put back into your home each year.

When applying for a Mortgage loan most banks look at your credit score, payment history, and most important of all your debt to income ratio (dir). Debt to income ratio is the total amount of your monthly bills that show on your credit report vs. your total monthly gross income. Gross income is the amount of money you make before taxes are taken out. Debt to income ratios can range from 1% to 100% or more. Most banks will expect your debt to income ratio to be no higher than 45%.

You can calculate your debt to income ratio by dividing your total monthly bills (showing on your credit report) by your total monthly gross income. Here’s an easy example, if you have $2500 in total monthly bills and your monthly gross income is $5,000 you debt to income ratio(dir) is 50%. I got this by using this equation, $2500 divided by $5,000 = 50%. Which means you may not qualify for certain mortgage loans.

Example 2

If your total monthly bills are $3,500 and your monthly gross income is $9000, this means your DIR is 39%. In this case you should be in good shape when it comes to your DIR.

Disposable income is also important to lenders in there decision making process. Disposable income is the amount of money you have left over after the bills are paid. Again the bills we are speaking of are the ones that show on your credit report.

You can calculate this by subtracting your monthly bills from your monthly net income. Net income is the amount of money your bring home after taxes. Here is an example….You have a monthly net of $3,500 after taxes and your monthly bills of $1,800. This means your disposable income is $1,700 and different banks have different guidelines so check with your lender to find out there min. requirements.

Knowing this information can be crucial for not just finding a job at www.vlitzo.com, but finding the right job. If you know how to calculate your Dir and disposable income, then it gives you a good idea on the least amount of annual salary you can accept from a new employer. In other words if your bills are $2,500 per month and you want your DIR to be under 40%, you should be looking for a monthly gross of at least $6,500. Which is right around 78k per year. This annual salary will put you at 38% DIR.

In a perfect world it would be nice to have 78k per year, but this doesn’t mean you have to in order to have a great DIR percentage. Try to pay off the smallest bills that have $20 to $40 monthly payments then work on the bigger bills. This will decrease your monthly bills allowing you to accept a lower yearly salary from your new employer.

Here’s another example:

Your monthly bills are now $1700 and you want your DIR under 50%. This means the least amount of monthly gross salary you can accept is $3,500. This comes to about $42,000 per year! So different strokes for different folks.

Remember go to www.vlitzo.com, your one-stop shopping place for ways to improve your credit, improving your mortgage portfolio also learning how to prepare for our video interviews and preparing resumes!!!!

All of these things are important to know when looking for your next career at www.vlitzo.com. Visit us now to upload your video interview free along with free membership.