Home Loan Financing - A Basic Primer

Home loan financing can be a very overwhelming and intimidating topic if it’s your first time through the process and you don’t know a lot about it. The experience doesn’t have to be so stressful or scary, though. Here are some basics to help put your mind at ease and make the process seem easier and maybe even more pleasant.

An educated mind is a beautiful thing. And the more educated you are about the home buying process, the more you can put your mind at ease that you’re getting a good deal and are working with something you’ll be able to afford over the length of the mortgage.

Terms:

Fixed Rate - This means that the interest you pay will be the same during the length of your mortgage no matter what happens to the interest rate during that time. If you can lock into a low fixed rate, you’re doing a good thing.

Variable Rate - This refers to an interest rate that changes during your mortgage. It can swing either way, so be careful when going with this option. If interest rates go down, you’ll be paying less. If, however, interest rates swing the other way, your monthly payment could be a lot higher than you originally thought. There are also a lot of other variables that come into play when you go with a variable rate. You’ll want to make sure you know exactly what all the small details are so that you aren’t hit with bigger monthly payments down the line.

Downpayment - This refers to how much cash you’re going to pay upfront toward the total cost of the house. Generally, you’ll end up paying 10% to 20% of the cost of the house upfront. The bigger downpayment you make, though, the less you overall total payment will be.

Total Payment - This is the total amount you’ll pay over the length of the loan. This can’t be determined accurately with a variable rate interest, but with a fixed rate, you can learn how much you’ll be paying in interest over the years if you stick to the normal payment schedule. Obviously, you’ll want to go for the lowest total payment possible.

Closing Costs - While these vary depending on who you work with, you can expect to pay 3% to 6% of the total cost of the house or property in "closing costs." A lot of the time, this is something people either don’t think about or don’t think is important. It’s something you should seriously consider, though, to make sure you have enough money on hand to complete the deal.

There are, of course, a lot of other minor details that you must concern yourself with when considering home loan financing. Hopefully, this basic primer will help you be able to establish what further questions you need to be asking. The more comfortable you become with the process of buying a home and home loan financing, the easier it will be to complete. Good luck in finding the home of your dreams.

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