Understand Your Loan

The current housing crisis has put many Americans at risk of losing their homes and had a significant ripple effect on the economy as a whole. Unfortunately, some consumers received loans in the early part of this decade that they ultimately could not afford. In many instances, buyers selected an adjustable rate mortgage (ARM) with terms they could manage at the loan’s onset. But when the scheduled rate increases take effect a few years later, they found themselves too far in debt without enough income to meet their commitment.

You can avoid the same fate by paying close attention to the conditions and terms of your own loan. Start with these four recommendations:

1. Assess your lender. Make sure that your loan officer is licensed in your state and in good standing.

2. Understand the lending process. In addition to learning about buying and selling real estate, you should spend time educating yourself on lending. For instance, you should have a good understanding of your credit score and how it affects your ability to borrow money. If you have a poor score, but a lender is still willing to give you a mortgage, there will probably be consequences down the line.

3. Study the rates and timetables. Many homeowners were caught off-guard when their monthly payments increased as part of their ARM schedule and structure. Make sure you will be able to afford the higher payments in the future if this is the loan product you choose.

4. Understand what your monthly payment will include. You want to make sure expenses like taxes and insurance are tied into your monthly payment and are not additional costs.

Visit the web site for your state government. The federal government offers information at http://www.usa.gov/Citizen/Topics/Family_Homes.shtml.