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There are home loans and buying programs specifically designed for low-income households.  Most of these programs help low-income buyers to qualify for a mortgage and obtain a loan to be able to purchase a home. Those who would otherwise be unable to qualify for a mortgage loan because of poor credit rating or low-income can seek these types of program for assistance, typically in the form of mortgage payments insurance.   In this case, a third-party organization or insurance company will insure the mortgage payments of the borrower to the mortgage lender should the borrower default on the loan.  Because of the insurance, the mortgage lender is more willing to loan the money to a borrower who is in a low-income situation.    

Buying a house with little down payment

There are various government–sponsored home loans and housing programs depending on the individual’s locality. Low cost home ownership schemes abound for those who cannot buy property outright or afford the standard 20% down payment.   For homebuyers who can pay only less than 20% of the value of the home mortgage lenders will usually require a Private Mortgage Insurance or PMI from the borrower. This type of insurance protects the lender in the event that the borrower defaults on the payments, but this does not protect the borrower from eviction and foreclosure.  This type of insurance is paid on a monthly basis as part of the monthly mortgage payments. There are also other types of insurance that protect the borrower as well as the lender.  One such insurance is the mortgage payment protection insurance. For this type of insurance, the insurance company pays for the monthly mortgage in case the borrower is unable to meet payments due to illness, unemployment or accident.  This prevents defaults from happening and protects the lender and the borrower from possible foreclosures.   The insurance company pays for the monthly mortgage only up to a certain period, usually a year or two, depending on the terms and conditions. However, this should be enough time for the individual to recuperate or find a new job so he or she can once again meet the monthly mortgage payments.

Long term mortgages

The longer the term is the lesser one has to pay for the monthly mortgage because the total amount of the house is spread over a longer span of time.  This is also mostly the reason why 30-year mortgages are popular because the payments are spread into 360 payments while 15-year mortgages only have a number of 180 payments.  For those who have a low-income, a longer mortgage term will give them enough leverage so they can allot enough money every month to meet the mortgage payments. Recently, 40-year mortgages are also becoming popular.  Approximately 30% of the top mortgage lenders are now offering 40 year-mortgage terms or more, with or without mortgage payment protection quotes.  This type of mortgage is particularly popular among first-time buyers as they struggle to own their first property.

Disadvantages of the 40-year mortgage

Critics argue that there are a lot of inherent problems in the 40-year mortgage.  Primarily, a longer term means being in debt longer. If a person starts their mortgage at the age of 35, they’ll be paying for the mortgage until they’re 75! This means that they will not be able to retire as early as they wish. Furthermore, the chances of them becoming unemployed during this period are very high and if they do not have any savings put aside, they’ll risk losing their home after many years of paying for it.  Also, paying a longer term means that they have to pay much more interest and thus reduce their disposable income during the entire term of their mortgage, which is practically their lifetime.  40-year mortgages also mean that people will be paying for their mortgage into their retirement, which is risky, since there is a big chance that the individuals won’t be able to meet their mortgage payments during retirement.   Longer term mortgages also mean that borrowers can buy a house that is well beyond their means.  While this can be an advantage, it also increases the debt burden if the price of the house falls or if the interest rate and home insurance crashes, leading to negative equity. 

Advantages of longer term mortgages

While 40-year mortgages have many disadvantages, it also has a list of advantages. The most obvious is that it enables a lot of low-income individuals to buy property and a decent home.  Buying is still better than renting in the long-term because in renting, even when the individual is in retirement, he or she will still have to pay for the rent.  If the individual was paying off the mortgage instead of paying the rent then they would have owned their home which they could convert into cash later on or pass on to their spouse or children. Thus if you are going to rent for a lifetime, might as well buy property and pay the monthly mortgage just as if you were paying rent.  Compared to renting, home ownership is better because you have more freedom and control over your property. Whereas when you rent, you will always be at the mercy of a landlord. There are also many rent-to-own programs existing today which many people can take advantage of.   Another advantage of longer term mortgages is that in a period of 40 years or more, inflation will reduce the real value of the mortgage, making monthly mortgages and buildings and contents insurance easier to meet.  In the life of the 40-year term, you can always switch your mortgage to a shorter term should your financial situation improve.   This means that in the meantime that your budget is tight you can take advantage of the low monthly payments during a 40-year mortgage.  You can always pay off the debt early and not be stuck in debt for 40 years.

Tags: Mortgage payment protection quotes | Mortgage payment protection quotes | Buildings and contents insurance | Buildings and contents insurance | payment protection insurance | payment protection insurance | Mortgage payments insurance | Mortgage payments insurance | Home insurance | Home insurance

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This entry was posted on Thursday, May 14th, 2009 at 1:28 pm and is filed under Real estate companies. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.