For starters, if you’re in the market for a house, you couldn’t pick a better time. The prices are probably about as low as you’re ever going to see them. Sure, they’ve been falling. They might even continue to fall a bit more, though we suspect we’re damned close to the bottom, if not there already. But even if home values continue to drop for a while, they are going to start coming back up. Like all markets everywhere, our American housing market has corrected itself. It will bounce back. It always does, because real estate has real value.

On top of that, interest rates are at an all time low. If you’re credit worthy, you can get a mortgage with an unheard of 4.5% rate. Even if you don’t plan on buying a new house, you should be thinking about refinancing your old one for an interest rate like that.

The other thing to consider, though it might be a bit unpleasant to some, is that there are a lot of foreclosures out there. In most cases, banks are looking to get rid of that property, and you might very well find a seller who is willing to accept a low offer. Another thing some are doing is buying houses from people who are on the verge of being foreclosed on. A case like that is a win-win proposition, as it helps the distraught homeowner to get out from under the house, and it helps the buyer. Since it keeps the bank from having to foreclose, it ends up being a winning situation for everyone involved.

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When you get your mortgage statement, look it over. Chances are that you’ll find that you’re doing business with a different company than the one you initially signed papers with. Sometimes this even happens before you make the first mortgage payment.

Not that this is anything to worry about. Like we said, it happens all the time. It’s especially prevalent in the high risk home loans market, but it happens across the industry. The reason for this is that the larger mortgage lenders will often buy out blocks of loans from smaller lenders. By buying large blocks of loans, they mitigate their risk by spreading it over a wide array of buyers. Note that this is different from a home loan modification, which is used to help troubled borrowers.

The reason that many small lenders are eager to sell the mortgages to larger lenders is that, in essence, this reduces their risk. They are content to take a smaller profit in return for reduced risk. The larger lenders, by contrast, look to gain a lot more money (by way of your interest payments), and can afford to take the risks because they are dealing with larger numbers of homeowners. The idea is that a few defaults won’t hurt them nearly as badly as the smaller lenders, and they do stand to make more money overall.

In most cases, this doesn’t affect you as a homeowner, except for the line on the check that says “Pay to the Order of.” Even still, however, it’s not a bad idea to touch base with the new lending company, as you will want to establish a relationship with them should you need to borrow money down the line for home improvements or the like.

So don’t be surprised if your home loan changes hands. It might even happen several times, but these things are just a normal part of the housing market. Screwy, maybe, but normal.

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One thing that homeowners need to realize when they hit hard times is that, generally speaking, your lending institution is on your side. They’re not the enemy, nor do they generally want to foreclose on your home. Contrary to popular belief, banks generally make better and more sure money from  homeowners who pay their mortgages on time.

This isn’t to say that a bank can’t or won’t foreclose if it feels the need to do so. Generally speaking though, it isn’t in the bank’s best interest to do so, if they can help it.

Additionally, there are numerous government programs designed to benefit both the homeowner and the bank by helping distressed homeowners to stay in their homes. Nobody wants to lose a home to foreclosure and, believe it or not, the bank doesn’t really win out when they foreclose either.

If you find yourself falling behind on your mortgage payments, the first thing you should do is contact your lender. They can generally help you get back on track if you haven’t fallen too far behind. Even if you are considerably behind on your mortgage payments, most lenders can help you by way of a modification. Depending on your income and other factors, government assistance may even be available to help you catch up on your mortgage.

Modifications can help borrowers in several ways. Your lender will have more specific information concerning what programs your home loans qualify for. Common solutions include adjusting the interest rate, changing the type of mortgage, and extending the term of the mortgage. Whichever scenario is right for you and your lender, you will find that lenders are generally eager to work with you to prevent foreclosure.

Even if you don’t qualify for, or don’t want a loan modification, there may be alternatives to foreclosure. One of the more common ones is a short sale. While it’s not a perfect solution, it beats foreclosure, and has a much lesser effect on your credit.

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Do some shopping
Buying a home could be one of the biggest purchases you ever make. Shop around for that mortgage. This will allow you to pit lenders against one another. A lender might tell you they are offering you their best deal. That is until you bring in a competing lenders offer. It is amazing at how the tune will change when you have an offer from the bank across the street.

Rates
Ask all the lenders what their rates are. You will need to know if this rate is a fixed or adjustable rate. Remember that adjustable rates are what got so many people in financial trouble. Find out what the high end of your payments will be on and adjustable rate mortgage. You do not want to be in your home for five years and end up with a mortgage payment that you can no longer afford.

Points
Points are fees the lender collects on your loan. Your interest rate will most often be linked with how many points you have paid. It can be to your advantage to pay more points up front to have a lower interest rate in the end.

What fees will you be dealing with
Just because you are going to pay this lender for a decade or more does not mean they are not going to get all they can out of you. Keep in mind the lender can charge fees such as loan origination, underwriting, closing costs, and many more. Ask your lender to give you all the costs you will incur at the time of closing. Keep in mind that these fees will vary from lender to lender.

Down payments are your friend
You will be hard pressed to find a lender that will loan you 100% of your home loan these days. You will need to save up at least five to ten percent for a down payment. This not only looks good to the lender, but it can also help reduce your final closing cost fees.

A fee hidden away with down payments is PMI, or private mortgage insurance. Some lenders can add this on for borrowers who do not provide a 20 percent down payment. This little add-on protects the lender in the event you fail to continue making your mortgage payments.

Knowledge is power, and now you have the power. You have the power to help reduce the final cost of that home loan. You do not want that first home loan payment to be something you dread. Besides, you want to be spending money improving the house to your tastes. Keep all the money you can in your pocket and out of the lenders!

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30-year fixed mortgages are, by far, the more popular between the two. 30-year home loans have a lower monthly payment than a 15 year home loan. Among other things, this means you can get a bigger loan (and therefore a house that’s more expensive) with a 30-year mortgage than you can with a 15-year mortgage. In addition, a 15-year mortgage can be harder to qualify for, and isn’t an option for every borrower.

The benefit that a 15-year home loan has over a 30-year home loan is that you’ll pay less in interest charges over the course of the loan, even though you’ll pay more per month.

Let’s look at some real-world numbers. Let’s assume that you’re going to buy a home at a price of 200,000. We’ll say you get a decent interest rate of 6 percent, just for the sake of the example. On a 15-year loan, you’re going to pay $1681.96 a month. On a 30-year home loan, you’re going to pay $1,197.91 per month. You’re looking at a difference, then, of just under $500 per month in your mortgage payment.

Now, let’s look at that same loan over the course of the loan. On the 15-year loan, you’re going to pay a total of $302,753, of which $102,753 is interest. On the 30-year mortgage, you’ll pay a total of $431,249, of which $231,249 is interest. As you can see, you’re looking at a significant difference in the amount of interest you pay over the course of the loan.

Now, the question remains which is better. If you’re able to get the amount of home you want for a 15-year mortgage, you will pay less in interest. However, there’s always the possibility that you could instead invest the extra money you save each month and make a profit on it. If you can make a decent return on your investment, it may well be worth taking the longer term home loan.

While the obvious answer to this question would seem to be “yes,” that you should always pay cash rather than going into debt, the fact of the matter is that it’s not always quite so simple. There are some circumstances in which you’re actually better of getting a home loan and investing your cash somewhere else.

The basic calculation

Like many things in life, the answer to this question lies in a rather simple formula. Will you have more money, in the long term, if you invest your cash and take out a mortgage than if you pay cash for the house?

Let’s suppose that you can get a mortgage at a rate of 5.5 percent. That’s a relatively low rate, and right now mortgage rates are near an all-time low. While you can’t count on that rate forever, it is what it is for now.

The first question is how much you’ll be able to earn on your cash if you invest it. Will you be able to earn 9 percent? 2 percent? Somewhere in between? The difference between what you can earn and what you pay for your mortgage is the amount of additional profit you’ll make over time.

Other important factors

Interest rate isn’t the only factor, however. When you have a mortgage, there are usually certain tax advantages. The interest that you pay on your mortgage is, generally speaking, a tax deduction. Obviously, you should check with your accountant or tax attorney for specifics.

You also need to recognize that you’ll pay taxes on the profits if you invest your cash. Those taxes can eat into your margin, so you need to know what they’ll be, too.

No guarantees

You can’t be sure that any given investment is going to get a certain rate of return. Even the safest, soundest investments can, as the recent financial crisis has shown, wind up losing you money. There is always the possibility that, if you invest your money instead of using it to pay cash, you’ll come out behind.

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Home Loans on Zillow

Currently, thirty-year fixed mortgage rates as reported on the Zillow Mortgage Marketplace, are at 4.87 percent. Over the last week the rates hovered between 4.80 and just a hair above 4.90 percent. In fact, the movement far in 2010 has been very tight—ranging between 4.80 and 5.00 percent.

15 year fixed home loans are at 4.26 percent. For a 5-1 adjustable rate mortgage, the rate is 3.84 percent.

These rates are based on many thousands of mortgage quotes submitted daily through the Zillow site and represent the most recent market activity.

Analyst Predictions

Many analysts have prognosticated that interest rates on home loans will begin to rise in spring of 2010. In fact, some are predicting rates to go as high as 8.00 percent. This may be extreme but a one point increase seems possible. The reason? Mortgage backed securities (MBS). The Federal Reserve Bank is schedule to stop buying them at the end of March 2010.

FHA Loans

FHA (Federal Housing Authority) rates are still very low—as low as 4.75 percent. These loans account for about 33 percent of all new mortgages. You might wonder why everyone doesn’t get an FHA loan.

The answer is premiums and fees. For example, PMI (Private Mortgage Insurance) a monthly premium which is paid by the borrower to help insure these loans against default, has risen to over 2% of the mortgage balance.

The $8000 government tax credit for first time home buyers can help absorb some of the higher fees and insurance being charged on FHA loans.

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FHA Express  Home Loan

The FHA Express mortgage requires only a 3.5 percent down payment. This type of loan is ideal for families that have a steady stream of income, but that may not be able to provide the sizable down payment that was needed in the past. By not having to put as much money down, you can use that money for other things like buying furniture or paying off some high interest debt.

While there has been some controversy as of late about the down payment required on an FHA home loan, the fact remains that, for now, the down payment is still a low one. Some politicians and activists have suggested that the low down payment that comes with an FHA loan leads to more defaults, but it isn’t entirely clear whether that’s actually the case, statistically speaking.

VA Loan Guaranty

If you’re a veteran, you may be eligible for an even better deal than a low down payment home loan. If you qualify for a VA loan guaranty, you may actually be able to buy your home without any down payment whatsoever.

The way it works is this: VA guaranteed loans are loans offered by regular lenders, such as mortgage companies, banks or savings & loans companies. They are guaranteed by the government. This means that the lender is protected against any loss, even if you can’t repay the home loan.

In effect, this VA loan guaranty replaces the normal protection that the lender would get by requiring a down payment. There are other benefits to a VA loan guaranty as well, but this is perhaps the most significant.

Other Options

If you don’t qualify for an FHA home loan or a VA guaranteed loan, you may have other ways to reduce your down payment. Some lenders will negotiate the amount of the down payment with you, or may be willing to roll closing costs or other fees into the actual home loan amount. If the down payment is higher than what you can afford, talk to your lender to see what other arrangements they may be willing to make.

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Still, there is speculation that this is all about to change. Consistently, the Federal Reserve has been lowering interest rates as inflation has not been much of a concern. However, most experts suggest that the Fed will be raising rates which will, in turn, make home loans more expensive.

There’s another way, however, that the Federal Reserve is influencing housing prices. The Fed buys a certain amount of mortgage-backed securities, also known as MBS. An MBS is a grouping of home loans that are pooled together and then that are sold as a bond.

How MBS Work

Here’s how an MBS comes into being. When you get a mortgage, the bank gives you money in exchange for putting your home up for collateral on the home loan. The bank or mortgage broker may then sell your loan to an entity that will put your loan into a pool with other loans. These loans will be of various types and maturity dates. The company that aggregates these loans will then issue bonds (the MBS) that offer a stream of income for the buyer.

The companies that buy the mortgages and aggregate them are government sponsored entities. Some of these, such as Fannie Mae and Freddie Mac, have experienced trouble in the past few years. Others, such as the Federal Home Loan Banks, have fared better.

What the Federal Reserve did to fix MBS

One of the problems with the housing market is that no one was wanting to buy MBS. This meant that the supply of new mortgage loans was slowed. As a part of its efforts to try and get the economy going again, it purchased $500 billion in MBS. By March of 2009, they increased this to a goal of $1.25 trillion. These purchases by the fed have helped the MBS market stay liquid, and have kept rates low.

Transition from Fed to private investors

Experts believe that the fed will stop buying MBS once it hits its goal. This prop that had been holding up the market will be knocked out. What remains to be seen is how other investors will then react. The fed will first slow down its buying of MBS and then eliminate it altogether.

Some experts believe that private investors will ask for a much higher interest rate on MBS. This will then lead to higher rates on mortgages. The real question that remains, however, is how fast they will rise and how high. On those points, no one can be certain.