If you are looking for mortgage loan basics because you are a first-time homeowner, finding this information may seem like a daunting and intimidating task to be accomplished. An important reason for this is because unless you have inherited a great fortune, you are more likely to acquire a loan in order to purchase your own house.
As such, mortgage loan basics for first-time homeowners are skills and fundamentals that are extremely important to learn for most people. There are many great resources such as Investopedia that provide a layman’s resource for understanding complex financial concepts and make the whole topic much easier to understand.
It is understood that you will be paying loan payments for a reasonably long time in the future if you are borrowing to buy a home. Therefore, it is important to keep these loan payments manageable and within your budget. Be wary of a banker who wants you to be too ambitious as to how much you can afford. You must remember that you are accountable to pay for the mortgage so it is important it is affordable.
The following are some important mortgage loan basics for first-time homeowners that will be of great help to you and ensure you make the best possible decision when acquiring your home.
Understanding the types of mortgage loans
There are various types of mortgage loans available. You should understand these different types, and choose the one which suits you best. Examples of different mortgages include a fixed rate mortgage loan and an adjustable rate mortgage loan.
Financial experts like Suze Orman recommend using an adjustable rate mortgage. This is particularly true when rates are considered to be very low, which is historically below a seven percent interest rate. However, one should only select this option if they believe they truly have the financial capacity to make the payments if interest rates go up.
In the fixed rate mortgage loan, the loan payment will remain the same or fixed regardless of changes in the interest rates. This gives you a relaxed feeling that rising market interest rates will not affect your payment; although, neither will falling interest rates.
On the other hand, there is the adjustable rate mortgage or ARM, in which the loan payments will be constantly changing depending upon various factors. Understandably, the fixed rate mortgages sound like a good deal, but it has different qualification rules, which are generally difficult when compared with adjustable rate mortgages.
However, having the knowledge of all the different types of mortgage loans will give you an advantage to make a better decision.
Down payment
The understanding of the down payment is important and basic information that every first-time homeowner should know about. Generally, a portion of principal and a portion of interest make your monthly mortgage.
Depending upon how much are you paying upfront, you may avail many different advantages. For example, if you pay the down payment, which is less than 20 percent, you will be eventually paying more than you would have paid otherwise.
For instance, taxes, principal, interest, the homeowner insurance (PITI) and in some cases, private mortgage insurance (PMI) are also included in your monthly payment if you pay less than 20 percent as a down payment.
This becomes a significantly greater monthly payment, if you had paid more than 20 percent upfront. In that scenario, you will be saved from most of the payments, especially if there is no PMI required then.
Good faith estimate
A good faith estimate is your right that you must know about. It involves all the details about your spent money and the fees, of which you are charged. A loan officer can explain any unclear item to you in that estimate.
Special Loan Programs
There are many special loan programs available as well. You will have to see whether you can qualify for any such program or not. Teachers, policy officers, low-income buyers and military veterans are entitled to different special loan programs.
Know your rights
As the owner of your property, you have the right to exclusive possession and have many other property rights as to how you want to use your land and home. These will vary by state and country so it is best to read up and understand what you can and cannot do with your new property.
It is clear that there are many reasons why mortgage loan basics for first-time homeowners is critical knowledge to have. By collecting all of the relevant information, you will be on your way to getting your first home with ease. Be sure to talk to a financial professional, real estate agent or lawyer before making any drastic decision regarding your home, especially if you don’t fully understand mortgage loan basics.