If you suffer a house fire that severely damages your home, your next step is probably going to be to buy a new house.

That (most likely) means getting a new mortgage.

Let’s pause here for a second. If you were wondering what happens to your existing mortgage after a severe house fire – the answer is that it isn’t cancelled. It remains in effect but is most likely paid off by the settlement that you, the homeowner, receive from the insurance company.

Once that mortgage is paid off and you start looking for a new house here are some tips to keep in mind when taking out a new home mortgage.

But first, should you buy or rent in today’s marketplace?

A lot of people are getting caught up the current state of the real estate market where home valuations are soaring.

Most experts advise against getting caught up in home price cycles. They also recommend not paying attention to such things as the number of homes that are being listed, buying in the winter versus buying in the summer, and trying to guess how interest rates are going to move in the future.

Instead, you should only focus on one thing – buying a new home because you want or need to, rather than as an investment for the future.

That means if your previous home was damaged by fire and you need a new one now is as good a time to buy as any other.

OK, with that out of the way, let’s move on to a few mortgage buying tips.

Stay away from adjustable rate mortgages!

There are many things that can happen to those that do not qualify for a standard, fixed rate loan.

One of those is falling for the trap that comes from adjustable rates. These loans are some of the worst for the consumer because of the high cost of maintaining them over the long haul.

Most of these loans will adjust each year, and they do not often adjust down.

That means that each year, the home buyer is more interested than ever in refinancing, which also costs a good deal.

But, the underlying problem to the home buyer with this rate adjustment is that they will often not be able to afford the monthly payment on the home in just a few years time.

Do the math

By doing the math, a homeowner can quickly see that they will stand to pay thousands of dollars more over the course of the loan if their rate adjusts even if that adjustment is only one percent maximum each year for a total of five percent.  Here is an example of what would happen to the home owner’s mortgage payment if it did adjust like this.

Here are some numbers to see what this actually means:

Suppose the homeowners have a home that has a mortgage of $250,000 and they have an adjustable rate mortgage at five percent which has a maximum adjustment of one percent per year.  The term is for a 30 year mortgage.

• $250,000 mortgage at 5 percent for 30 years amounts to a $1342 monthly payment.
• $250,000 mortgage at 6 percent for 30 years amounts to a $1499 monthly payment.
• $250,000 mortgage at 7 percent for 30 years amounts to a $1663 monthly payment.
• $250,000 mortgage at 8 percent for 30 years amounts to a $1834 monthly payment.
• $250,000 mortgage at 9 percent for 30 years amounts to a $2011 monthly payment.

To most home owners, this is an incredible increase in their budget, and it is very likely that they won’t be able to handle the additional cost over the long haul.

Need help navigating the mortgage maze?

If you feel like you don’t have the time to do extensive mortgage research or the knowledge level to make such an important financial decision, there is an other option when it comes to finding a good mortgage – hiring a mortgage broker.

Hiring a broker can offer a number of benefits, such as:

• A good broker can save you time because they have a number of lenders they work with and they know who can do what types of loans

• A good broker knows how to nudge the process along so your loan application is approved much faster

• A good broker can also submit and resubmit a loan package to a new lender very quickly

• A good broker acts as a go-between during the loan application process, smoothing out any wrinkles and ensuring you get approved as fast as possible

• A good broker knows how to handle any problems that may arise during the application process, keeping you on track to approval

• A good broker is familiar with the language of underwriters, which makes it easier for you to get approval because they know how to present things in the manner that the lender wants

Remember, if you are applying for a mortgage, once you are rejected it is nearly impossible to correct an error or explain a misunderstanding. Hiring a good broker is a way for you to ensure difficulties with your mortgage application are handled quickly and effectively.

Here’s the bottom line on mortgage brokers:

A good mortgage broker can greatly simplify the confusing mortgage process and most likely save you money. Brokers might also have more options for people who have blemished or less well-established credit.

Of course that still leaves the problem of finding a reputable broker – as with any profession there are people who are good at it and people who are not.

When hiring a broker you should look for someone with experience and a long list of satisfied clients.

Looking to sell your fire-damaged house?

If you own a house that was recently damaged by fire, We Buy Fire Damaged Houses pays all cash and buys burned homes in “as is” condition.

That means you can get your money fast so that you can buy a new house and move on with your life. To see if your fire-damaged house qualifies for a free quote, fill out the short form below.

Photo by Gabrielle Henderson on Unsplash