Many people dream of owning a home. They do whatever they can to scrape together a down payment on a mortgage loan and work many years to pay it off. But should you buy a home or continue to rent? Here are some things to consider.

1. Are you ready for the responsibility? Owning a home involves a variety of chores and financial investments. Are you ready to do yard work, home repairs, and other tasks that you currently don’t have to think about because you have a landlord? If you are not willing to do the work, or can’t afford to pay someone else to do it, you may not be ready for homeownership.
2. Do you have enough saved up for a down payment on a home loan? The larger the down payment, the smaller your monthly payments are going to be. Mortgage lenders also look more favorably on people who have a sizable down payment, healthy income, and low levels of debt.
3. Have you done your homework to understand the different types of mortgage products available? Just because your friend got a 15-year mortgage loan doesn’t mean that’s the right product for you. Knowledge is power and can keep you from getting into the wrong type of mortgage.
4. Do you need assistance from a first-time homebuyer program in your community? You may be able to get free advice from a housing counselor or help with a down payment.
5. Do you plan to use the first-time homebuyer tax credit? If so, you need to have a contract on a home before May 1, 2010, and must close on the home before July 1, 2010. If you qualify for the tax credit, you could receive up to $8,000.
6. Have you shopped around for mortgage quotes to get an idea of how much you can borrow? Compare offers from several mortgage lenders before choosing one to do business with.
7. Have you carefully researched the neighborhood you want to move to? Have a real estate agent do a comparative analysis of homes that are similar to what you want to purchase. Ask about foreclosure rates in the area and whether there is any data on how many homes are underwater on mortgages.

There are a lot of things to consider before taking the leap from renting to homeownership. Avoid feeling pressured to buy a home because everyone tells you that is the American dream. You may be content to continue renting a while. Consider all your options carefully so that you have no regrets in the future.

According to Freddie Mac data, mortgage rates averaged 4.95% for 30-year loans, and 4.32% for 15-year mortgages.

How Long Can Mortgage Rates Remain Low?

Current mortgage rates are near historical lows, but some housing experts believe rates may begin to rise this year. It is unclear what may happen to rates. However, you still have time to take advantage of low mortgage rates by refinancing, so keep the following things in mind as you shop for a loan:

1. You can’t time mortgage rates. Interest rates fluctuate all the time, so it’s difficult to predict with certainty which way they are headed at any given point in time. If you shop around for a refinance deal, consider asking your mortgage lender to lock in your rate. In most cases you must pay a fee to lock in a mortgage rate for a specific period of time, which is usually about 60 days
2. Don’t assume that your current mortgage lender has the best refinance deal. Shop around and compare deals for mortgage refinancing. The good faith estimate (GFE) can help you compare apples-to-apples. Let your current mortgage lender know about other offers to see if they can match them or give you a better deal
3. You could end up paying mortgage insurance (MI) if your property value has fallen significantly. If your home appraisal leaves you with less than 20% equity, expect to pay for MI. You can avoid MI by using any money you have saved to make a one-time payment at closing to boost your home equity
4. If you don’t have a title insurance policy to protect yourself, now is the time to get one. Title insurance is issued to protect your mortgage lender against problems that may be related to the property title. In many cases, you have to ask for an owner’s title insurance policy that protects you
5. Unless you are desperate to raise cash, it’s probably not a good idea to cash out equity when you refinance. With housing values still falling in many areas, you may want to hold on to as much equity as you can

Consider refinancing if you are struggling to make your monthly payments, have a high interest rate, or have an adjustable rate mortgage. However, refinancing your mortgage may not make sense if you plan to sell your home soon, or already have a low mortgage rate. Use a loan calculator to determine if refinancing can save you money.

The troubled economy has caused some homeowners to consider accelerating their mortgage loan payments. Although many financial experts caution against paying off a home loan early, many people are ignoring that advice and focusing on owning their homes faster.

Mortgage Interest

One of the most common reasons given to discourage people from paying off a mortgage early is because they won’t be able to deduct the interest they paid on their income tax returns.

Before you accept this argument hook, line, and sinker, use a mortgage payment calculator to see if the amount of interest you can deduct on a tax return beats what you can save on interest by aggressively attacking mortgage principal.

Saving and Investing

Another argument against paying off a home mortgage early involves the notion that you could earn more by investing the money you would put toward extra payments. In some cases you would earn more by investing the money. But it’s important to stay true to yourself and decide what type of risk you want to take with your cash.

Are you going to feel more secure with your money in the stock market or some other type of investment, or are you going to be happier knowing that you are going to own your home free and clear in a few years? Only you can decide if mortgage acceleration is right for your situation.

How to Accelerate Mortgage Loan Payments

If paying off a home mortgage early appeals to you, consider these popular methods:

• Make mortgage loan payments biweekly instead of monthly. This amounts to making 13 payments a year instead of only 12. Although many banks offer to set up biweekly payments for a fee, you can do it on your own. Simply cut your monthly home loan payment in half and pay that amount every two weeks.
• Use bonuses, tax refunds, and other windfalls to pay down your home loan. Make sure you direct the mortgage lender to apply the funds to your principal.
• Refinance mortgage to pay it off in 15 years. Depending upon how much principal you owe, expect to see the monthly payments increase. Make sure you have the income to support the higher mortgage payments.

Pay off Other Debt

Finally, when deciding whether or not to pay off a mortgage loan early, consider whether or not you have other debts. If you have high interest credit card debt or other loans, use extra cash to pay them off before turning your attention to acclerating mortgage payments. 

Having bad credit can keep you from qualifying for a home loan.  But that doesn’t mean you can’t work toward becoming a homeowner. Consider renting a house that gives you an option to buy it.

What Is a Lease-Option?

A rent-to-own or lease-option deal allows you to rent a home and pay extra each month toward purchasing the property at a later date for a specific price. When you sign the lease the seller requires you to pay an option fee of up to 5% of the purchase price.

Lease-options specify a period of time that you have to decide whether or not to actually buy the property. If you don’t excercise your option to purchase the home, you lose the option fee and the additional money paid toward the purchase. 

Why Rent-to-Own?

A rent-to-own deal can allow you “try out” a house and neighborhood before committing to buying property there. Also, if you can’t get a mortgage loan because of bad credit, a lease-option gives you time to save up money for a down payment. You also can work on cleaning up bad credit, although rent payments are not factored into the credit scoring formula, according to the Mortgage Professor. Having good credit and a hefty down payment improves the chances of a mortgage lender giving you a home loan down.

Deals Can Backfire

Use caution when entering into a rent-to-own deal. Make sure you understand all the terms and use an attorney to review the contract. Some problems that can derail your plans to buy a home this way include losing your option fee and rent payments by falling behind on rent payments. The deal also dies (and you lose the money) if you get evicted. Make sure that any home you lease-option isn’t in the foreclosure process so you don’t lose your money.

Falling Home Values

Also keep in mind that signing a lease-option contract could backfire if real-estate prices continue to drop. The home’s value could fall below the purchase price by the time you actually have to make a decision to buy it. A recent report by Fiserv and Moody’s Economy.com said the average home price in the U.S. is likely to fall 6% by 2011.

Lease-options can work in your favor if you know what you’re doing. But don’t get in over your head just because you are too eager to buy a house when you really can’t afford one. You can rent a place while taking the time to repair credit and save up a down payment without getting into a contract that could result in losing your shirt.

People struggling with mortgage loans in five states are getting additional aid to get them through the housing crisis. President Obama said the government plans to give $1.5 billion to local and state housing agencies in an effort to help troubled homeowners.

Help for Troubled Mortgage Loans

Funds are to go to agencies in Nevada, California, Arizona, Florida, and Michgan, states hit hardest by the housing downturn. Those states have seen housing prices plunge more than 20% from their peak.

Money can be used in various ways, including modifying home loans that are underwater or helping unemployed people struggling with mortgages to avoid foreclosure. Housing agencies can also use the aid for “programs encouraging sustainable and affordable homeownership,” according to the White House blog.

Get Help with Your Mortgage

While these programs should help many troubled homeowners, you may need to look for relief sooner than that. Contact your mortgage lender or loan servicer if you are already behind on monthly payments. You may be eligible for a mortgage refinance or loan modification.

Refinance Mortgage

Mortgage refinancing through the government’s program requires:

• Your mortgage loan to be guaranteed by Fannie Mae or Freddie Mac
• You to be current on mortgage payments
• The ability to make payments on the refinanced home loan
• You to be the owner-occupant of a one- to four-family home

If you don’t have a home mortgage guaranteed by Fannie Mae of Freddie Mac, don’t assume that your mortgage lender can’t help you. They may have some other program to help you do a mortgage refinance.

Mortgage Loan Modification

Getting approved for a home loan modification through the government’s program requires:

• Your mortgage payment (including taxes and insurance) to be greater than 31% of your monthly gross income
• You must be able to document financial hardship that is keeping you from affording your mortgage payment
• Have a first lien that originated before Jan. 1, 2009

If you are facing foreclosure, mortgage loan servicers can’t proceed with a foreclosure sale until you’ve been evaluated for help through the mortgage loan modification program.

Contact Mortgage Lender

The most important takeaway is that you must be proactive about getting help with your mortgage loan. Ducking and dodging phone calls and letters from your mortgage lender isn’t going to help your situation. Be diligent about tracking down someone at your mortgage lender who is authorized to set up some kind of deal to get back on track with your home loan.

It’s a buyer’s market right now for people wanting to purchase homes. Housing prices are affordable and mortgage rates are low. But if you don’t have a sizable down payment saved up, you could end up straining your finances.

Use a Mortgage Payment Calculator

Before applying for a home loan you should go on a fact-finding mission to determine how much house you can afford. While it’s fun to visit open houses and browse through homes for sale at various Web sites, it’s just as important to crunch the numbers with a mortgage payment calculator to see what your monthly bill is going to look like.

Your Down Payment Matters

So much attention gets focused on mortgage rates that many people don’t really stop to think about how the size of their down payment is a key factor in how money they’ll shell out for housing payments for the next 30 years or so.

During the housing boom, mortgage lenders often enticed borrowers with home loans that required zero or low down payments. Millions of home buyers jumped into these mortgage loans, desperate to get a piece of America’s homeownership dream even though it meant high monthly payments or mortgage rates that would adjust up in the future.

Who Can Get Low Down Payments?

Mortgage lenders are reluctant to offer many borrowers low down payment mortgage loans these days. Some borrowers may be able to qualify for low down payments, but many mortgage lenders are looking for 20% down to underwrite home loans at the best mortgage rates.

FHA Changes Down Payment Rules

Even the Federal Housing Administration is rethinking its 3.5% down payment option. It recently announced a policy change to only allow people with credit scores of at least 580 to qualify for the 3.5% down payment. Borrowers with lower credit scores must put down at least 10% on a mortgage loan.

Beyond Home Loan Principal and Interest

When using a mortgage calculator be sure to plug in your estimated costs for homeowners insurance, property taxes, and homeowners association (HOA) dues. Depending upon where you buy a home, these costs could add a significant amount of money to your monthly housing bill.

Are You Ready to Get a Mortgage Loan?

Your fact-finding mission should determine whether or not you are ready to apply for a mortgage loan and buy a home. After running all the numbers through your calculator and looking at how much debt you can afford to carry on your current income, it may be prudent to postpone a home purchase. But if you feel that you are ready to take the plunge, shop around and compare quotes from several mortgage lenders to find the best deal.

More homeowners are choosing to walk away from their mortgage loans rather than make payments on homes that have lost significant value. These strategic defaulters intentionally stop paying on mortgages even though they can afford to make the payments.

The practice has many people debating the ethics of walking away from home loans. Some people see nothing wrong with the practice while others say homeowners who intentionally default are immoral.

Mortgages as Baggage

Strategic defaults have especially risen in Arizona, California, Nevada, and Florida, according to the Wall Street Journal. Those states have high percentages of people underwater on mortgage loans, owing more than their homes are valued at.

Promise to Repay Mortgage Loan

While it may make financial sense to walk away from a home loan, the fact is that anyone who borrowed money signed a promissory note to repay the loan. That promissory note didn’t say pay up unless home values go down or until you get tired of making monthly payments.

Financial Damage

So what happens when homeowners strategically default? First, they end up in foreclosure, and the mortgage lender takes possession of the property. Then their credit scores get hit, plunging as much as 160 points. They also may have other assets seized by their mortgage lender depending upon where they live.

Mortgage Defaults Hurt Community

Strategic defaults don’t just hurt individual homeowners. They also affect the neighborhood where the property is located. Foreclosures significantly impact the property values of surrounding homes. The closer you live to a foreclosure, the more it negatively affects your home’s value, especially if it looks abandoned and poorly maintained.

People who lived withing 300 feet of a foreclosure usually saw their property value drop 1.3%, according to a 2008 study. People within 300 to 500 feet of a foreclosure had a 0.6% drop, according to the New York Times.

Could It Happen Again?

On the positive side strategic defaulters may be able to cut their housing costs while they rent for a while. That could help them save money. But it seems that if these people are willing to renege on a home loan once, they’re likely to do it again in the future if they don’t like the housing hand they’re dealt.

Strategic defaults are likely to continue as more people become fed up with being underwater on their mortgage loans. But anyone who decides to take this step should be prepared for the fallout.

Obtaining a new mortgage loan, auto loan, or other types of credit is going to be tough for years to come. They also may feel disapproval from other people who faithfully continued paying on their home loans even though they are underwater too.

Builder magazine recently had an article about whether or not the McMansion is dead. McMansions certainly seem out of reach for many Americans at a time when unemployment is high, demand for food stamps is up, and being frugal is in vogue.

McMansions Sitting Empty

It’s likely that the inability of many Americans to obtain jumbo mortgage loans combined with a movements to downsize may slow development of these supersized homes. Also, there seems to be an overall feeling among many folks that McMansions are wasteful. About 69% of Americans said the American home had gotten too large, according to a CNNMoney poll.

So should you give up your dream of owning a larger home, even it if can’t exactly be called a McMansion? Not necessarily. But here are a few practical things to consider.

Mortgage Debt-to-Income Ratio

You need a healthy income to afford home loan payments on a large home. Use a mortgage payment calculator to determine how much house you can afford. Keep in mind that you need to have a debt-to-income ratio within underwriter guidelines to get approved for a home loan.

Mortgage lenders usually don’t want you to have more than a 28/36 debt-to-income ratio. In other words, your housing expenses (including taxes and insurance) should ideally use up no more than 28% of your gross income, and your total debt (including a mortgage) should use up no more than 36% of your income.

Other Housing Costs Add Up

In addition to monthly mortgage payments, expect to shell out money for other housing-related costs. Those bills include utilities, repairs, and maintenance. Depending upon where you live you also may have to budget for lawn care, snow removal, or homeowner’s association dues.

Jumbo Mortgage Rates

Mortgage lenders set higher mortgage rates for jumbo home loans. There also tend to be more fees. What is classified as a jumbo mortgage loan differs from one area to the next. In most states mortgages over the conventional loan limit of $417,000 are considered jumbo loans. You are unlikely to qualify for this type of mortgage unless you have excellent credit and a substantial down payment.

Ultimately, the decision to buy a large home is a personal one. But among the things to consider are whether you really require a lot of space, believe your income is going to remain stable, have a lot of family members who plan to live there and share the expenses, and whether or not you have the time and money to maintain a large property.

Mortgage refinance rates have edged up recently but are still low enough for many people to apply for a loan. If you’ve been paying on a home loan for several years, refinancing to get a 15-year mortgage can help you pay off your home quicker. But should you do it?

Lower Mortgage Rates

Mortgage loans with a 15-year term have lower mortgage rates than 30-year loans. That means you end up paying less interest over the life of a loan. For instance, 30-year fixed  mortgage rates are averaging 5.14%, while 15-year fixed loans are averaging 4.54%, according to Freddie Mac.

High Monthly Payments

But refinancing into a 15-year loan from a 30-year mortgage usually means your monthly payment is going to rise. For example, a 30-year mortgage  for $200,000 with a 5.14% rate would have monthly payments of $1,090.82, while the same amount for 15 years at 4.54% would have monthly payments of $1,534.08. Use a mortgage payment calculator to run different scenarios for interest rates and terms.

More Homeowners Refinance for 15 Years

Despite the higher payments, 15-year mortgages are popular these days. About one in five mortgage refinancings in November were for 15-year mortgage loans, according to the Mortgage Bankers Association. “My general advice is homeowners who have 30-year mortgages — and they’ve been in them for 3 or 4 years — it’s prudent not to go back into a 30-year mortgage,” Amir Syed of American Street Mortgage told CBS2.

Mortgage Principal and Interest Payments

Most of your mortgage payments go toward interest in the early years of amortization. So if you already have a 30-year home loan and refinance for another 30 years, you end up starting over again with most of your payments going toward interest.

It’s important to discuss all the numbers with your mortgage lender to determine if it really makes sense to refinance. Use the refinance savings calculator to determine if you can save money by refinancing and how long it is going to take to recoup the cost of refinancing.

Financial Freedom

For many people paying off their home represents true financial freedom. A 15-year mortgage is one way to reach this goal quicker, although you may have to make some sacrifices in your monthly budget to afford higher mortgage payments.

You can get free, no obligation mortgage refinance quotes here to determine if a 15-year loan can help you.

Single home buyers are more likely to be female than male, according to the National Association of Realtors (NAR). The group found that 20 percent of home buyers were single women, compared with 10% of single men. Singles who were first-time home buyers also were more likely to be women (24%) than men (12%).

Women Know What They Want

Perhaps the higher purchase rate is related to the fact that women tend to make up their minds faster when it comes to purchasing real estate. A Coldwell Banker survey found that 70% of women knew the day they walked into a house that it was right for them, compared with 62% of men.

Women and Subprime Mortgages

But even though it may not take long for women to choose the house of their dreams, it’s important that they don’t rush when choosing a home loan. Studies have shown that women are more likely than men to have subprime mortgages, and Black and Latina women have more subprime home loans than white women.

Comparing Mortgage Loans

So what should you look for when choosing a home mortgage?

• Mortgage rates are important, but so are other fees associated with home loans. Many people — not just women — make the mistake of only focusing on mortgage rates and don’t look at the annual percentage rate (APR), which is the true cost of borrowing money.
• Steer clear of adjustable rate mortgages (ARMS) or other risky products. A fixed-rate mortgage gives you set monthly payments and no surprises.
• Get a Good Faith Estimate (GFE) of closing costs from each mortgage lender offering a deal. The GFE helps you compare apples to apples.
• Look for mortgage lenders with years of experience. Avoid fly-by-night operations that don’t have a track record and make outrageous promises.

You can begin gathering home loan quotes from mortgage lenders here.

Paying for Your Mortgage

Every homeowner should have a solid budget to help them continue making monthly payments on a mortgage while putting money aside in savings. But a single homeowner  who loses her job could end up having an even tougher time paying on a home loan than a married person who is unemployed. Single homeowners usually don’t have a second income to rely on to make mortgage payments, while married people may be able to fall back on the second income.

Never bite off more mortgage than you can afford. Make sure your income covers not only your mortgage payments, but other monthly expenses, too.