Most people don’t think about the need to investigate mortgages until it’s time to buy a home in Houston. Mortgages are a necessary part of home-ownership for the majority of people, but so many people believe they won’t qualify or won’t be able to afford a mortgage that they put off buying a home.

These same people will continue to pay rent to a landlord to live in a home, simply because they don’t know which steps to take to apply for a mortgage of their own.

Why Buy a Home in Houston?

If you’re currently renting a home, then your rent payments are likely paying off your landlord’s mortgage. The longer you remain in that rental property, the more likely it will be that your rent payments are increased each year.

However, when you purchase a home in Houston, mortgage payments can be fixed to stay the same over a period of several years. You make your ‘rent’ payments the same as you always have, only this time each payment is reducing how much you owe, rather than just helping a landlord to pay off his debts.

House Hunting In Houston

Houston house prices have been reduced in recent years, which mean you could benefit from getting into a home that could be worth considerably more than the purchase price.

If you’re careful about shopping around for your home, you should learn quickly which homes are being sold at a reasonable price in certain areas of Houston, and which ones are underpriced.

You might even decide to purchase a cheaper home that has great potential to have a little cosmetic work done to it to increase the value quickly. This can build up your available equity fast.

Mortgage Pre-Approval

Before you go house hunting in Houston, mortgage pre-approvals can help you to stay within your own price range. Call your local mortgage professional and ask how much you are able to comfortably borrow on a mortgage before you go hunting.

This will give you a clear idea of your exact price range and will stop you from looking for homes that are far too expensive for your current income levels. You’ll find that buying a home in Houston that is within your own price range will mean it will be much easier to afford the repayments each month without having to struggle.

Your mortgage pre-approval is calculated using your current income and your current repayment commitments. Lenders then figure out how much of your income is remaining in order to service a new mortgage and then a total borrowing figure is calculated from this.

Before you head out to buy a home in Houston, mortgage planning and pre-approving your borrowing amount could save you a lot of stress and fuss. You’ll be glad you took the time to check your mortgage capacity before you signed a contract on a home purchase.

Refinancing: Fixed Rate to ARM

If interest rates have dropped significantly, yet you are still stuck with a fixed rate mortgage at a much higher rate, refinancing to an ARM may be a good option. Refinancing is also a good idea if you intend to move in under 10 years, because you will get a much better rate for the first ten years of the mortgage. The interest is often lower than market rates, meaning your initial monthly payments will be smaller.

ARM to a Fixed Rate Mortgage

If mortgage rates are rising above fixed rate mortgages then you need to consider refinancing. However, before deciding on a Houston refinance plan you need to decide how long you intend to stay in your current home. It may not make sense to refinance now, especially if you won’t have time to amortize the closing costs.

Reduce Monthly Mortgage Payments

With a good Houston refinance plan, you should be able to reduce your current monthly mortgage payments. Even a mere half- percent drop in interest can lead to a significantly lower payment, but you need to also factor in the closing costs.

If you need to lower your monthly payments, you can also extend the duration of the loan. However, you should try to avoid this option if you can, because you will only be paying more interest on the mortgage.

If you need greater flexibility, you can refinance to an interest only loan. This type of loan stipulates that the minimum payment you need to make every month is only the interest for a set period. Of course, you can also pay some of the principle back but you have the flexibility to choose how much you can afford to pay over the interest every month.

High Interest Loan Consolidation

The interest rate on a credit card is much larger than a mortgage, making refinancing your high interest loans a good idea in the long term. You will end up saving thousands of dollars by paying off your credit cards in both interest and tax deductions. This is because the interest rate on credit cards is not tax deductible whereas it may be with a home mortgage.

Using your home equity for expensive purchases may also be a better idea than using credit cards, especially since a mortgage is considered “good debt” while credit cards are “bad debt”. Of course, after the recent credit debacle maybe it’s a better option just to save up for those expensive purchases rather than risking your home.

The last few years have shown us how fragile the market really is and how quickly we can lose our property. Therefore, the best advice is only to refinance your mortgage if you really need to or if interest rate has dropped, but not to get more cash just to buy a new TV set when the old one is working just fine.

Setting a Budget

Working out exactly how much you can afford to pay for a new property is critical. Essentially, you need to work out how much disposable income you have each month to allot to mortgage payments. Working backwards from this amount, you will be able to determine your overall budget to buy a property.

To this end, you will need to draw up a monthly budget of incomings and outgoings and then use one of the many Houston mortgage calculators available online to calculate your total budget. You will need to input the term of the loan and the interest rate you expect to be paying as well.

The recent debacle on the housing market has shown the value of prudence, meaning it is unwise to spend your full income every month without leaving a buffer. Thus, deduct a minimum 10% from the monthly figure you came up with, just as a precaution. You can put this money in a savings account every month for an emergency fund.

Understanding Houston Home Mortgages

The two main types of Houston home mortgages are fixed rate mortgages and adjustable rate mortgages. Each one comes with advantages and disadvantages.

A fixed rate mortgage has a set interest rate for the duration of the loan contract. This is an advantage when interest rates are rising, as your rate will not fluctuate with the market and your payments will be stable. On the other hand, if rates drop, you will still be paying the same interest. Even so, if you are buying your home with the intention of living there longer than the country median of nine years, a fixed rate mortgage is probably your best option.

An adjustable rate mortgage means that your interest rate will fluctuate according to market rates and other indicators. However, most Houston mortgage contracts involve a fixed interest rate for a set period of time, which varies from lender to lender, that subsequently becomes variable. Initially, the rate will often be lower than a traditional fixed rate mortgage with very low monthly payments by comparison. On the other hand, once the initial period is up, your monthly payments will increase significantly, as the interest rate can climb even higher than normal market rates.

The secret with an ARM is to take advantage of the initial fixed rate period, which can vary from 1 month to ten years. Therefore, you can refinance to a fixed rate mortgage after the ten years are up or sell the property.

Depending on your goals, there are many other Houston home mortgages under each category, which may be more suitable for you, including an interest only Houston mortgage, or no mortgage insurance options.

Long-term Outlook

When buying a home, you need to look further than just your current needs. Think about buying a home that suits your needs now. There’s no point paying a mortgage on a big family home when there is only two people living there. If you intend on having a family later, you can always sell the smaller home when the time comes and trade up to a family home. You may also consider downsizing to a smaller home if the family have all grown up and moved away. The up-keep on a smaller home will be easier to manage and the mortgage payments may also be lower.

You may also need to consider the potential resale value of your home, because there will come a point when you will want to move. The main factor you will need to consider is location, because while a property can be improved, there is little you can do about the area.

Essentially, the more growth potential an area has, the higher the resale value of your home will be. It may seem premature to consider resale value before you have even found your home, but you should consider it a critical factor if you don’t want to end up underwater with your Houston home mortgage.

1. How much will a Houston refinance cost?

Most people don’t stop to actually work out how much Houston mortgage refinancing will cost them. They just see a lower interest rate than they’re currently paying and presume they will be saving money in the long run. However, the closing costs alone can take two to three years to amortize. There may be other costs involved as well, such as pre-payment penalties on your initial mortgage.

2. What is the real annual cost of your new mortgage?

Mortgages have more costs than just interest charges, including commissions and fees. The total cost of a mortgage is known as an effective annual percentage rate.

You need to compare the effective APR of your current mortgage to other offers because sometimes lenders seem to offer a better interest rate but the overall effective APR is either the same or even higher.

3. Do you have enough equity?

To qualify for a decent Houston mortgage refinancing offer you need a minimum 10% equity, but 20% is preferred. Without 10% equity, many lenders won’t even talk to you, but if you have 20% equity, you may qualify for better rates.

Besides having sufficient equity in your property, you will also need a decent credit score, as a mediocre one will get you higher rates so refinancing could end up increasing your monthly payments rather than reducing them.

Lenders will also verify your employment situation, your income and your assets, as the subprime mortgage debacle has led to lenders being reticent to give credit, especially without verifying this information. This is their way of checking that you’re actually able to afford the repayments on the amount you’re borrowing.

4. Should you reset the duration of the loan?

When signing a Houston refinance contract you will probably find that you have reset the mortgage to 30 years. If you have only been paying the old mortgage for one or two years, then this won’t be a problem.

However, if you have been paying off the mortgage for 15 years prior to the refinance, you may find that the term of the mortgage has reset and been extended out to 30 years again.

It may be better to choose a shorter term for the loan as you will build up equity faster and once your mortgage is paid off, your home can be your safety net in case anything happens. Once you are the outright owner of your house, you will be able to take out a credit line on your home if you need it.

Currently, the mortgage market is changing at lightning speed as it tries to adapt to completely different market conditions. For this reason, it is a good idea to do a lot of research before choosing the best Houston mortgage refinancing institution. Sometimes it’s better to stick to the lender you know because you have a relationship with them. If anything happens, they will likely be slightly more lenient than a lender who knows nothing of you.

The most important factor, though, is that your Houston mortgage refinancing project doesn’t end up costing you more than you are saving. Make sure to check all the fine print, especially the early closing penalties on your initial mortgage. If the savings are still substantial then get ready to do some running around because it’s just like applying for a new mortgage.

Refinance Loans

The goal of a refinance loan is to either find a better interest rate, consolidate outstanding debt or to take advantage of any equity that has built up in your home. If your aim is to get a better interest rate and lower the overall cost of your mortgage, before you jump into a new contract, take some time to enter your numbers into a mortgage calculator.

You should calculate whether the difference of the interest rate will in fact save you money versus the cost of actually refinancing. Some claim that a good rule of thumb is to look for a loan that has at least a 2% lower interest rate but this is not necessarily so. The best way to determine if the savings are worth the change is by working it out yourself, but if you’re unsure of the numbers you can speak to a mortgage professional about the exact costs involved.

There are a number of Houston mortgage loans available to refinance your property and you can find the best rates online. A good tool to use is a mortgage directory as you will be able to easily compare the different rates available.

Home Equity Mortgage Loans

An equity loan is, as the name implies, a mortgage that you place on your property in return for cash which will be equal to the difference between your current total mortgage and any built up equity value. This figure will not be exact unless you also have the interest rate of the new mortgage, and it also depends on the lender’s valuation of your property. This loan often works like a credit line as many lenders will on require you to pay one the interest on the balance outstanding every month.

Purchase Loans

Purchase loans are aimed at people wishing to buy a new home, a rental property or even a vacation home. Most lenders will assess your income and expenses and determine your borrowing capacity this way.

However, you shouldn’t base your purchase price on this figure. Instead you should understand how much the mortgage repayments will be each month and only buy a home based on how much you can afford to repay comfortably every month.

If you are able to obtain a mortgage to purchase a home and you have a good credit rating, but are having difficulty coming up with the down payment amount, you should look into the Houston Homebuyer’s Assistance Program. This program provides financial assistance to those with low to moderate incomes making it easier to obtain a mortgage and purchase their dream home.

Before you apply for a Houston mortgage loan, take time to speak to a mortgage professional about your options. Always ask plenty of questions and be sure you understand the answers you’re given. After all, it’s your money and your mortgage you’re dealing with, so it’s best to get it right first time.

If you life in Houston, mortgage refinancing might seem like a good idea right now. With the economy improving, this could be the best time to refinance before housing prices and interest rates start rising again.

Even if you don’t know anything about refinancing your mortgage, all it takes to get started is a little background knowledge and a few phone calls. While you may be wary of the process, your efforts will pay off when you are saving money on your mortgage payments each month.

What is a Mortgage Refinance?

In Houston, mortgage refinancing involves taking out a second loan on your home to pay off your first loan. Usually, the motivation behind this is to save money, which you will do if you can take advantage of the economy to get a lower interest rate than you currently have.

Mortgage refinancing isn’t for everyone. If you’re satisfied with your current mortgage, thinking of moving soon anyway, or struggling financially, you may not want to consider making this move just now.

Why Would I Refinance My Mortgage?

There are many reasons to pursue a Houston mortgage refinancing process. The most straightforward one is to lower your interest rate. This will, in turn, lower your monthly payment, not to mention that it will save you money over the term of your loan.

Another common reason to refinance your home mortgage is to change from an adjustable rate loan to a fixed rate one. This will allow you to lock in a low interest rate that will not change over the term of your loan, instead of subjecting you to interest rates that change with the economy.

If you live in Houston, mortgage refinancing can also offer you the opportunity to change the term of your loan. If you can’t afford your monthly payments, getting a loan with a longer term may help lower your payments enough that you can make them. On the other hand, you may want to get a shorter term loan so you pay less in interest overall.

Finally, you may want to refinance your mortgage if you would like to cash out some equity that has built up in your home. If your property has gained value, you can refinance for more than you owe on your home and use the difference to pay for large items, like a college education.

How Do I Get Started?

It’s easy to get started on a mortgage refinance. To begin, contact your current mortgage lender and see if they’d be willing to work with you to refinance your loan. Often, this is the easiest way to refinance, because the company has worked with you for several years and already has your information on file.

However, you should always check with some other companies to see if they’re willing to give you a better deal. In Houston, mortgage refinancing is generally pretty easy, because there are a good number of lenders to work with. Be sure to ask questions and negotiate, to make sure they’re truly offering you the best deal they can. Your efforts will pay off when your monthly payment is lower and you’re saving money on your mortgage.

For example, the City of Houston Housing and Community Development Department (HCDD) offers a program that helps those with low and moderate incomes to buy a home in the incorporated areas of Houston. This program, known as HAP (Homebuyer’s Assistance Program) will help to offset parts of the down payment, closing costs and other expenses that purchasing a home will incur.

Some of the eligibility conditions of this program include the demonstrated ability of the applicant to obtain a loan and the family’s income must be below 80% of the average income of the area.

The value of the home you intend to purchase cannot exceed a value of $200,000 according to the Single Family Mortgage Limits of the National Housing Act and it must be located within the taxation boundaries of the city.

As an applicant, you must invest a minimum of $500 in the purchasing transaction, according to the program. The HAP can award approximately $19,000 in financial aid to families whose earnings are below 80% of the average income for that area.

This should amount to approximately $45,000 for a family of three across most areas. Remember that this is the combined income of the whole family. If you’re in doubt about eligibility, always check before proceeding.

The state of Texas also provides financial assistance for first time homebuyers via a down payment assistance program or via the Texas Mortgage Credit program. The First Time Homebuyer Program is a relatively new program which offers up to 4% assistance on the first lien mortgage sum and a 10 year deferred second lien to assist with the down payment and closing costs.

While you must make regular repayments on the first lien, the program does not require you to make monthly payments on the second lien. However, if you sell the property or refinance before the 10 year period is up then you will have to repay the amount in full.

The Texas Mortgage Credit Program aims to make home buying more affordable for all the residents of the state with a low to moderate income, especially for first time buyers. This is probably one of the best options for those seeking a Houston home mortgage loan at affordable rates.

To find out more about financial assistance for Houston home mortgage loans, especially eligibility conditions, you should visit www.houstontx.gov . If you look under the housing heading you will find the information pertinent to financial aid for homebuyers.

But do you know why they’re such a good idea?

Did you know there’s also a trap some banks can set for your bi-weekly payments that seriously STOP you from getting ahead?

We’re going to look at some of the good and bad points of biweekly repayments and how they really can help you save thousands of dollars.

How the BiWeekly Method Works

Before you start trying to alter payments or avoid bank traps, it’s a good idea to understand how and why biweekly payments work.

Let’s look at a simple example:

If your mortgage payment was $1,000 per month – then you would pay 12 payments per year, which is $12,000 per year. Easy, right?

Let’s say you decided to pay half your mortgage payment ($500) twice a month, then you would pay 24 payments per year, which still adds up to $12,000 per year.

Okay – instead of opting to pay once a month or even twice a month, let’s say you decided to pay half of your mortgage payment every second Thursday (or on the same day every second week). Then by the end of the year you would have made 26 – not 24 – payments of $500, which is $13,000 per year. That’s one extra payment per year coming off the amount you owe on your mortgage.

No matter what loan amount, if you work out your repayments this way, it will always come out as one extra payment per year.

The reason this works is because not every month has exactly 28 days in it. Grab a calendar and count how many Thursdays you see. Most months will have four. Some months will have five Thursdays (usually two months every year). The same should work for any day of the week you choose.

Does it Work Every Time?

Let’s look at an example mortgage. (We’ll base this on $250,000 at 6.5% over 30 years). Our minimum repayment for this mortgage is $1,580.17 per month. Over 12 months, we would have paid $18,962.04.

Now let’s cut the monthly figure in half. We will now pay $790.08 biweekly. If you pay the half monthly figure every second week for a year, you get: $790.08 x 26 payments = $20,542.08

Did you notice that it’s still exactly one extra payment per year?
$20,542.08 – $18,962.04 = $1,580.17

So, if you put this new repayment amount into our mortgage calculator, it tells you that you could pay my loan off in 24.2 years. That’s almost 6 years off the loan term – and you could save $72,710 in interest, just by paying biweekly instead of monthly!

Every Cent Counts

Let’s see what kind of difference rounding up our minimum biweekly payment by a few cents can make.

Minimum biweekly payment = $790.08

Let’s round this figure up and pay an even $800 every two weeks. That’s only $9.92 per payment extra. You should be able to afford an extra $9.92 a payment. That’s only 0.70 cents per day!

Now we have the double benefit of paying biweekly payments, plus adding a few cents to the payment amount.

According to our mortgage calculator, your new loan term should be 23.4 years and you should have saved $81,200 in interest over the term of the loan.

Every cent really DOES help, doesn’t it?

1. PAYMENT HISTORY – 35% IMPACT
Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.

creditscores

2. OUTSTANDING CREDIT BALANCES – 30% IMPACT
This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home.

3. CREDIT HISTORY – 15% IMPACT
This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.

4. TYPE OF CREDIT – 10% IMPACT
A mix of auto loans, credit cards and mortgages is more positive than a concentration of debt from credit cards only.

5. INQUIRIES – 10% IMPACT
This percentage of the credit score quantifies the number of inquiries made on a consumer’s credit within a six-month period. Each hard inquiry can cost from two to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, 11 or more inquiries within a six-month period will have no further impact on the borrower’s credit score. Note that if you run a credit report on yourself, it will have no affect on your score.

Remember that the credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today’s credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.

Fortunately, you don’t have to be daunted by this task. With a little background knowledge, you should be able to figure out which of the quotes are most beneficial to you. Then, you will be ready to make the best decision possible about your new mortgage.

Interest Rate

The most important part of your Houston mortgage quote is the interest rate. While getting a low rate is important, it’s also important to make sure the rate is fixed. This means that it will not change over time and so you will not suddenly find yourself with monthly payments much higher than what you expected. This can often be the case with mortgages that begin with a really low, or ‘honeymoon’ rate, that revert to a much higher rate after a couple of years.

It can be worth it to take an interest rate that is a touch higher than the appealing introductory rate in exchange for fixing that rate in one place for a longer term. While your monthly payments might look as though they’re higher than they might otherwise have been, you will be able to count on their stability over time. If you want to, you can always try to get another loan later, with a lower fixed interest rate.

Length of Loan

The amount of time you have to pay off the loan is also important when considering each Houston mortgage quote before you. The longer the loan’s term, the lower your individual monthly payments will be. However, a loan with a long term also means that you will pay more in interest over the time you’re paying off the loan.

If you have the financial means, a shorter term loan is better. However, a longer term loan might be worth it if it allows you to make payments on a home that you could not otherwise afford.

Added Fees
Check, as well, for any fees that are added to your Houston mortgage quote. While every lender will charge some fees, if they seem extremely high you should check with your mortgage company. You may also notice that some lenders have fees that other lenders do not charge. Since these can add substantially to your monthly payments, take this into consideration before you sign any paperwork.

Monthly Payment

One good overall point of comparison between mortgage quotes is the monthly payment. Because this takes into account the interest rate, term, and fees of the loan, it is a good, quick way to gauge whether one particular loan is better for your financial situation than the others. If you find a substantial difference in monthly payments, trace it back to its source. This should help you find any hidden costs of your loan.

Other Clauses

In addition, you’ll want to check your Houston mortgage quotes for any other ways in which they differ. Some difference in the terms of mortgages is normal but asking about anything that concerns or alarms you will help clarify any points of confusion. At best, the mortgage company will explain their reasoning. At worst, you can decide to go with a different loan.

Regardless of the answer, always remember to ask plenty of questions from your mortgage professional to be sure you understand your obligation in relation to your home mortgage.