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Tuesday, February 8, 2011

Tips for getting a mortgage on a small property

If an individual can afford consistent monthly rent payments, that individual may also be able to make payments on some small property mortgages. While mortgages may not be right for everyone, mortgage loans for small property can be more manageable than a larger, potentially less practical mortgage loan. This article will illustrate some of the key issues pertaining to the mortgage acquisition process and provide tips and ideas that may useful for persons wishing to obtain a mortgage for small property.

Personal considerations

Obtaining loans for and owning property involve more time and effort than renting, however it may be worthwhile if more freedom, financial control and individual responsibility for property is called for. Mortgage loans are also used in real estate investing to leverage income potential. Before tackling the financial issues of a mortgage, a couple of personal reflections may prove beneficial in the property buying process.

• Assess personal needs and traits 

Mortgages may not suit everyone. When owning property there is more personal responsibility for property maintenance and repair that in the case of rental agreements may be taken care of by the property management company.

• Forecast future living 

If one has a young family or is moving into the empty nest stage of life, a smaller property may or may not be a necessity. Knowing what living requirements would be most suitable ahead of time can help one determine whether a small property mortgage is the right thing to do.

Financial considerations

• Loan Type

There are many mortgage loan products available on the market. Finding the right one can be the difference between an out of control housing situation and a constant and manageable real estate loan. Some loans require home appraisals and high credit standards while others may require average credit scores but high earnings capacity.

• Mortgage lender 

Determining which mortgage lender is right is an important step in finding a mortgage. A few good places to start inquiring about loans may include large and small lenders alike. The Federal Housing Administration (FHA), and other well established financially solvent mortgage lenders such as Fannie Mae, Wells Fargo and Company or Bank of America constitute some of the reputable national lenders. Additionally smaller, fiscally responsible local banks may also be ideal depending on where one is located, one's relationship with the bank and the loan product. Some more application and processes are summarized in the following presentation:

• Additional expenses

Property ownership can involve additional expenses such as home warranty agreements, utilities and replacement equipment. In a rental agreement, many of these additional costs are paid for as defined in the lease terms. Being aware of the potential for such additional expenses can make home ownership less of a surprise and a more realistic proposition.

• Cash down payment

The larger the up front cash payment, the lower the monthly mortgage payment and monthly expenses will be. Things like mortgage insurance and higher interest rates can be waved with large down payments making them a good idea if feasible. Moreover, if it is affordable, a 20% or higher down payment may be a good idea if that capital can't yield a higher return than the savings from lower interest payments.

• Affordability

Mortgage companies that issue prime loans have tougher restrictions for obtaining mortgages of any size. Factors they are likely to consider are monthly income, capital savings, credit history and asset values. Typically, mortgage companies base mortgage loan calculations on the 29% rule where the 29% of one's pre-tax income is used to assess how much loan a buyer can take on.

Property related concerns

In addition to personal and financial considerations, there is another relevant element to the mortgage 
buying process. Specifically, the property itself is a factor because small properties are not always cheap or a good investment. A few matters relating to the property itself are as follows:

• Location

If the small property is located in a high-priced area of downtown New York, or London, it is not likely to be cheap. Thus a small property mortgage does not always equate to an affordable mortgage.

• Condition

Older homes tend to have greater potential for costly restoration and repair making a small mortgage less practical. Even thought the mortgage may be small in such an instance, the cost of maintaining the home may not.

• Insurance costs

Insurance costs such as hazard insurance can add a nice chunk of cash to a monthly mortgage payment. If one lives in an area or region prone to natural disaster, the cost of insurance will likely increase the cost of the small property mortgage.

Small property mortgages are not that different from large property mortgages. They may be more manageable if certain conditions such as location, age of home and insurance costs don't inflate the actual cost of the mortgage. Before obtaining a small mortgage loan it may be a good idea to ponder some of the information and tips contained in this article. Doing so may better prepare one for the potential hidden costs, living consideration and utilization of financial strategies.