You need to know what a principal is. It's rather simple really; the principle is the amount you intend to borrow in order to buy your house. So in essence it's just the house price minus your down payment. When you talk to a bank, they will tell you how much they are prepared to loan you once they have looked at your credit score and overall income. Simple eh?
Next, you need to know what type of mortgage you intend to get. Traditionally, mortgages are split into two different categories; Mortgages with a fixed interest rate and mortgages with an adjustable interest rate. It's easy to figure out what they mean, but I'm going to go ahead and tell you anyway, for a reassurance. With a fixed rate, you pay the same amount every month as long as you can carry the loan. Normally this rate is a little higher than the adjustable rate starts at, but getting a fixed rate is the safer option. With an adjustable rate, you will probably get a smaller rate to start with but it could rise with the market. Obviously this is more risky – you will have to weigh up your options and offers and see what feels right.
But nowadays there are more options – they are mainly just mixes of the first two. A 3 year fixed rate followed by an adjustable rate, or where you choose the amount you want to pay. Just make sure you tell the lender how much you are willing to pay each month and what your risk tolerance is.
Remember to take a good look at the interest rate. Some could be low rates per month but get higher so you need to make sure that you fully understand what is going on. If you choose to have an adjustable rate, make sure you know what the risks and probabilities are.
Make sure you can comfortably afford the monthly payment – putting it too high in order to try and pay it off a bit quicker is a stupid move, because you don't want to sacrifice too many luxuries for a year without a mortgage. But also, bear in mind that you can't just choose a loan which boasts a very low monthly payment – because there are complications. Interest – only mortgages usually boast very low monthly charges but they won't reduce your principal – even after years of paying interest, you will still owe as much as you did at the start.
The real trick to getting a loan is to realize what you are getting yourself into, and make sure you fully understand the rate and terms.
