Tuesday, March 20, 2012

5 rookie homebuying mistakes and how to avoid them

Gina Pogol wrote an interesting article for hsh.com on rookie homebuying mistakes.  I wish I had read this article a few years ago before I converted my ARM to a Fixed.

5. Fixating on the 30-year fixed rate mortgage
Why it's a mistake: To very conservative folks, traditional 30-year fixed rate mortgages are the only home loans to consider. However, especially for younger buyers, hybrid adjustable-rate mortgages (ARMs)--which give you a fixed rate for a specified number of years before becoming adjustable--may be better.
According to the National Association of Realtors' 2010 statistics, the average home seller in the U.S. owned the home for eight years. If you're younger, it's possible that you may need to be even more mobile for a job move or family change. If it's simply not very likely that you will keep your home for 30 years, why get a mortgage that assumes you will?
ARMs usually give you a 1 percentage point or greater discount from the 30-year fixed-rate mortgage. You can select a fixed rate for three, five or seven years and might save enough in interest throughout those years to pay for a car. Some mortgage experts suggest taking out an ARM, and during the fixed-rate period, paying the higher monthly payment as if you took out a 30-year fixed at a higher interest rate. This way, when the loan adjusts you'll be ahead of the game in paying both principal and interest.
A closely related myth is that adjustable rates always increase. If mortgage rates fall, ARM rates can adjust downward, too. Homeowners with ARMs today are finding that their mortgage rates have dropped into the 3 percent range.
How to avoid it: Think realistically about how long you might own your first home. When shopping for a mortgage, ask about ARMs and hybrid ARMs with various fixed-rate terms, and compare them to fixed-rate loans of various lengths.
 The full article can be found here.

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