The vast majority of people looking to buy their own homes have to rely on financial help. Generally, this financial help comes from banks or mortgage lenders. Some of the terminology these agencies use can be confusing. Let's look at some of them.
Mortgage: Mortgage is a term that you will hear over and over again as you move through the process of buying a home. In simple terms, a mortgage is a type of loan used to buy real property such a home or land. 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.
When you take the mortgage loan, the lender will hold the title to the property until the debt is paid off. 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. This is known as foreclosure.
PITI: PITI stands for Principle, Interest, Taxes, and Insurance. This is a common term used during the home buying process.
Down Payment: As far as home loan basics are concerned, the down payment is the amount of money that you pay upfront. In a traditional sense, the down payment is money that you already have saved. The more of your own money that you can apply to the down payment the lower your payments will be. Conversely, if you make no down payment at all (or a very small one) the higher your monthly payments will be. A general rule of thumb is to have at least 3-5% of the cost of the home as a down payment.
Principal: The term principal is the total amount of money that you are borrowing from the lender. In other words, principal is the cost of the home or land, minus the down payment that you make.
Interest: Interest is the amount of money that you pay the lender for its services. This is above and beyond the principle amount. Interest is assigned as a percentage and it may come as either a fixed rate or a variable rate. The lower the interest rate on the loan, the less your payments will be.
Taxes: Many home shoppers do not realize the impact that taxes will have on their loan or the buying process in general. All home buyers are required to pay property taxes. 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.
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. These taxes must be paid so ensure that you plan for them.
Insurance: Insurance is another obligation and payment that you will be required to take on when you buy your home. The lender will require a certain amount of insurance on the home, but you will probably want to add other types as well. For instance, if you live in a flood zone you will probably want flood insurance.
Closing Costs: Closing costs can vary from one lender to the next so make sure you understand what your lender is charging. In general, closing costs include loan origination fee, title search fees, discount points, survey fees, appraisal fee, title insurance, deed-recording fee, and credit report charges.
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.
This is a process that many people are considering, but there are some things that you should know before you simply jump into the process. Many have made mistakes and with a few tips you may be able to make a move that is the right one for you, or you may decide that you should stay right where you are.
Tips To Help You Succeed
The first thing that you should know is that you can change providers as often as you like, but each time you switch from provider to provider you may be spending money that you are intending to save.
There are usually charges associated with remortgages and while they may make sense the first time around. But if you keep doing again and again you are actually spending more money than you need to. So, shop carefully the first time around to ensure that you won't have to continue to move from lender to lender.
When you are shopping around you should take a close look at all the arrangement fees that are associated with each offer. All financial providers out there are competitive with one another and they know that they can attract you with the lowest arrangement fees, so hold them to this!
Don't blindly sign on the dotted line and assume that you are getting the best deal, look at the terms of the offer and then look at the charges and get the best all around deal possible!
While on the topic of fees you will want to look into what is often called early redemption charges or early pay off charges. These fees are often associated with loans that you pay off before their maturity date and they are most commonly found on fixed rate and discount loans.
You have be sure what these charges are because they can make or break a deal, as these fees can often range into the thousands of dollars or pounds.
Remember that when you are shopping around for remortgages, they are not of one size that will fit all. Most providers offer a wide range of products for you to choose from including discounts, fixed rates, capped rates, cash backs, and more.
Because there are so many different options it may be difficult to ascertain which is the best for you, so you should be prepared to ask for help or ask questions at every turn. You need to understand every detail of a program before you decide that it is for you, so be sure to read everything, even the fine print, and understand it before you decide that this is the deal for you.
There is something for everyone; you just need to make sure that you find the deal that is right for you.
Both Peter Kenny & Ajeet Khurana are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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