Home Purchase Loans
True or False?
1. Bad Credit No Problem
False: Although you may be able to get a home loan with bad credit, your interest rate will probably be higher with bad credit than if you fixed your bad credit before purchasing a house. Fixing your bad credit now could save you thousands of dollars in interest.
2. 100% Financing is the best way to finance a home purchase
False: Although some 100% financing options are good, other 100% financing options can be very bad. For instance if your 100% financing is in the form of an 80/20 loan, 80% of your 100% financing is considered your fist mortgage and is set up at a home mortgage rate (usually the rate you've been quoted) and 20% of your 100% financing is set up as a second mortgage or a home equity loan. These 20% loans usually have higher interest rates and are more apt to have balloon payments. Another thing to consider is that you will now have two loan payments to make each month. These types of 100% financing loans become bad when the combined monthly payment becomes too high for your income.
3. I know I will be able to afford my house if the payments are close to what I'm paying in rent.
False: This is only true if your house payment includes money for property taxes, homeowners' insurance, and any other mortgage related items such as private mortgage insurance AND if your new utility bills are the same as you have been paying. HUD recommends that you keep your Principal, Interest, Taxes, and Insurance (PITI) payment below 29% of your gross monthly income before taxes and your total debt payment (including your PITI, credit cards, student loans, car payments, child support payments, etc) below 41% of your gross monthly income before taxes.
Home Equity Loans
If you have questions, please contact Neighborhood Housing Services of Richland County for free advice or contact consumer protection at 1-800-422-7128.
More Information:
NHS of Richland County offers the following links for more information about this subject. NHS of Richland County is not responsible for content on any web sites not their own.
Freddie Mac "Don't Borrow Trouble"
Predatory Lending Resource Center
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