Financing the purchase of your home

Financing the purchase of your home

Sep 13

Investing in a home is among the biggest decisions a person makes in his lifetime. The article tends to discuss some of the things, which a buyer can consider before finalizing to invest in the properties. Read on to explore!

Buying home is one of the major investments made in life, and as such requires proper planning, time, and patience. The buying process in most cases requires financing through a mortgage, unless the purchaser has the ability to pay for housing in cash.

Mortgage

The mortgage is a long-term secured loan, used exclusively for the purchase of real estate. Being a secured loan, it is to the real collateral property, which means that if for some reason the buyer cannot meet the payments, the bank will take possession of the house through a process known as foreclosure.

Therefore, to avoid any inconvenience in the future, you need to plan and the first step is to understand the terms of a mortgage. There are different types of mortgages, but most are common terms you need to understand to make the process easier and always in your favor. First, the main point is the total loan amount. Generally, this amount is the value of the house for sale. Thus, if the down payment is higher, the lower your mortgage debt, which at the same time helps you to save on interest payments.

Calculation of interest rates

The calculation of interest or the overall cost of the mortgage is based on the annual percentage rate or APR. This is a very important factor because it determines the total cost of the loan in the long run, and is linked to your credit. If your credit is excellent, you are more likely to qualify for a lower interest rate. So before starting the process, check your credit report to verify that it is free of errors, which could jeopardize the possibility of obtaining a favorable interest rate, and take corrective actions.

It is also important to have an idea of the interest rates of mortgages available in the market. Another option would be to communicate directly with several banks. Interest rates used in mortgages may be fixed or variable. If the mortgage is issued at a fixed rate, the payments will be the same until the loan has been repaid completely, but if the rates are variable, monthly payments may vary, as you go up or down the interest rate in the market.

 

Knowing the rate of interest, principal amount and the loan period, you can calculate the monthly mortgage payments, and know how much of your budget goes to pay the same. The financial institutions or brokers also charge what they call origination points. The charge is a percentage or fee paid to cover costs after starting the loan, and can be deducted from taxes only if the funds are used to purchase housing and to cover other costs such as closing costs, lawyer, and inspector, among others.

In some cases, the lender will require that you get the private mortgage insurance or PMI (Private Mortgage Insurance). This is because some financial institutions require a minimum down payment for the property, which is usually 15-20%. However, there are financial institutions that accept a lower down payment, if the buyer obtains private mortgage insurance or PMI, in order to protect himself in case of default. Therefore, it is important to know what percentage of input the lending institutions require.

Once the loan is granted, the important thing is to abide by the contract to avoid penalties, and situations that may affect your financial well-being and that of your family.