These Are Only A Few Of The Home Loan Basics

Category: Finance.

Owning a home is a dream that many people share. This article will explore a few of the fundamental issues concerning homeownership and the terms associated with the process.

Understanding the basics is a good first step in homeownership. The vast majority of people looking to buy their own homes have to rely on financial help. Some of the terminology these agencies use can be confusing. Generally, this financial help comes from banks or mortgage lenders. Let s look at some of them. In simple terms, a mortgage is a type of loan used to buy real property such a home or land. Mortgage: Mortgage is a term that you will hear over and over again as you move through the process of buying a home.

In essence, a bank or mortgage lender will loan you the money to make the purchase and they will hold the home or the land as security for the loan. If you cannot or do not make the required payments on the property, the lender may sell the property in order to recoup its money. When you take the mortgage loan, the lender will hold the title to the property until the debt is paid off. This is known as foreclosure. This is a common term used during the home buying process. PITI: PITI stands for Principle, Taxes, Interest, and Insurance. Down Payment: As far as home loan basics are concerned, the down payment is the amount of money that you pay upfront.

The more of your own money that you can apply to the down payment the lower your payments will be. In a traditional sense, the down payment is money that you already have saved. Conversely, if you make no down payment at all( or a very small one) the higher your monthly payments will be. Principal: The term principal is the total amount of money that you are borrowing from the lender. A general rule of thumb is to have at least 3- 5% of the cost of the home as a down payment. In other words, principal is the cost of the home or land, minus the down payment that you make. This is above and beyond the principle amount.

Interest: Interest is the amount of money that you pay the lender for its services. Interest is assigned as a percentage and it may come as either a fixed rate or a variable rate. Taxes: Many home shoppers do not realize the impact that taxes will have on their loan or the buying process in general. The lower the interest rate on the loan, the less your payments will be. All home buyers are required to pay property taxes. When considering buying a home make sure you take into account the various taxes that you will have to pay during the course of the year or at year s end. The amount of the tax is often put into an escrow account where a third party will hold the money until the deal closes and the money is released to the taxing agency.

These taxes must be paid so ensure that you plan for them. The lender will require a certain amount of insurance on the home, but you will probably want to add other types as well. Insurance: Insurance is another obligation and payment that you will be required to take on when you buy your home. For instance, if you live in a flood zone you will probably want flood insurance. In general, closing costs include loan origination fee, discount points, title search fees, survey fees, title insurance, appraisal fee, deed- recording fee, and credit report charges. Closing Costs: Closing costs can vary from one lender to the next so make sure you understand what your lender is charging.

These are only a few of the home loan basics. Home shoppers can find much more information on the home buying process either online or through a reliable real estate agent.