Consumers are burdened with untangling complicated housing policy and regulation when it comes to achieving the dream of home ownership.
For example, the Federal Housing Administration (FHA) recently revised its policies regarding home loans and refinancing. Starting in July, borrowers in ongoing disputes with creditors over debts of $1,000 or more may no longer qualify for FHA-insured loans — even if they have perfect credit. This will cause complications for millions of people, not only in Washington, but across the nation.
FHA-insured mortgages represented almost a third of all mortgages in 2011 and as many as 47 percent in the second quarter of 2010 (according to the latest HUD data). Because of the still-weak job market, people generally have less cash on-hand to use for a down payment. For these folks, an FHA loan may appear like a good option as loan requirements have gradually tightened over the years. Additionally, FHA loans seem to have lower-than-conventional rates as of late. Together, this may seem attractive, but when you factor in credit card debt, the terms and conditions may not be as good as they initially appeared. This is where thorough research comes in.
I call out this example specifically because it has received very little mainstream coverage and yet will affect so many. So the question is, then, where to begin? There are a few simple steps to get underway:
●Comparison shop: Just like you would for any other good or service, it’s recommended that you contact multiple lenders to walk through options, upfront costs and what your monthly expenditures will be. Only then can you get a clear picture of the types of rates you are qualified to receive, and how you might structure payments.
●Consider how long you plan to stay in your home: Given today’s rates, an adjustable-rate mortgage makes more financial sense if you plan to stay in your home less than six or seven years — something many people in D.C. should consider giving the transient nature of the city. The only caveat to adjustable rate mortgages is that you have to recognize the risk of higher rates if you don’t move or refinance. This is an option that sounds scary to some people, but with a good assessment of your situation, can become less so.
●Talk to your lenders: Once you find a lender you are comfortable with, pepper him or her with as many questions as you can think of. Not asking questions is a mistake countless people make. Choosing a home loan — whether for a new buy or refinances — is one of the biggest decisions a person makes in his or her lifetime. Yet many strong people become meek when questioning the terms and conditions they don’t necessarily understand. Simply put, there is no limit to the amount of questions you should ask your lender before signing on the dotted line. If there is one place you don’t want to find yourself surprised, it’s with your loan terms.
Now, more than ever, we must take advantage of both the great volume of tools and resources at our disposal that can make the borrowing and lending process easier on yourself and your wallet. Ultimately, you’re in the driver seat when it comes to financial decisions so it’s important to arm yourself with the tools and information available.
Doug Lebda is the founder and chairman of LendingTree.com.