For the first time homebuyer the excitement of locating, bidding and getting the nod on that first home is an exciting whirlwind of anticipation, nail biting, and overall enthusiasm. Before you start picking out fabric for the curtains, however, be sure to also be in a good place for making an educated decision on your first mortgage.
The pitfall many first times fall into is the trap of buying too much house for their budget. In some cases they were aided and abetted by loan brokers who would entice them to go ahead and sign on the dotted line by offering very attractive loan products with an initially very low interest rate. Unfortunately the interest rate eventually adjusts upward and before long the home is no longer affordable, forcing the new homeowner to move. Do not let this happen to you but know your options!
Overall, prevailing home loan products currently on the market are fixed rate loans that span 15 or 30 years, and also adjustable rate mortgage loans which may span the same period of time but which are a bit of a gamble when it comes to the actual amount of interest that needs to be paid over the life of the loan.
In a fixed rate loan, the terms are spelled out at the beginning. The interest rate will remain the same over the life of the loan and the payment is the same each and every month. For example, in the course of a 30 year fixed mortgage, you make 360 identical payments until the loan is completely paid off. A 15 year fixed mortgage demands 180 identical payments.
The length of the loans for adjustable rate mortgages is the same, but interest rates adjust – usually upward – at specified intervals. Thus the loan payments may vary from year to year, depending on the amount of the adjustment. Although these mortgages are tempting because of their low introductory rate, the fact that the upward movement of the payments has already cost many a homeowner his dream home should give you pause before considering this option.
It is important to remember that the amount of your mortgage, and sometimes also the interest rate, is directly tied to the amount of money you have available for a down payment. Generally speaking, the more money you put down, the lower the interest rate you can negotiate and the less money you have to spend over the life of the loan. Part and parcel of the down payment is the earnest money that you will submit with your offer on the real estate of your choice. Subtracting from your down payment are the costs involved in getting the loan. Again, it pays to shop around since some lenders offer special deals on their loans and are willing to significantly lower the costs associated with closing the home loan.
