Article Presented by:
Ethan Deville
Buying and owning a home is the American dream for many people, and has been for decades. Being able to say that you own your house and your plot of land is a big accomplishment in a person's life. Owning a home, or buying a home is seen as one of the best financial decisions that a person can make as well. When you rent, you are simply paying off someone else's mortgage for them and allowing them to acquire equity. When you choose to purchase a home, you will reap the long-term benefits of acquiring equity and actually owning the home.
Once you find a home that you want to buy you will most likely need a loan to pay for it. This type of loan is most commonly referred to as a home mortgage. When looking for a mortgage lender you will have many different types of lenders to choose from. You can choose from savings and loan associations, commercial banks, mutual savings banks, and mortgage companies. The mortgages these institutions offer will have varying features.
There are many factors to take into consideration before deciding where you to get a mortgage loan. Remember, this is a loan for potentially hundreds of thousands of dollars and a loan that you might be paying on for the next 30 years. You want to make sure that you spend a good deal of time and energy researching the best mortgage option available to you.
First of all, you have to be approved for a loan by the lending institution. This will depend on the amount of your income and your credit history. The lending institution will then tell you how much money they are willing to loan you to purchase a house. Once you have been approved you will want to shop around for the best interest rate possible. It may not sound like much on the surface, but a variation of just a few points in the interest rate can quickly add up to tens of thousands of dollars over the life of a 30-year loan.
The interest rate can be reduced if you are able to make a large down payment on the house. The more money that you pay out of your own pocket on the house, the less you are borrowing, and hence the less interest you will have to pay over the life of the loan. There are three types of interest rates that can be applied to a home mortgage loan. These are a fixed interest rate, a variable interest rate, and a combination of fixed and variable interest rates.
A fixed interest rate means that you will have one interest rate over the entire loan period that will never change. A variable interest rate means that the amount of interest you are paying on the home will vary with the federal interest rate. A combined interest rate loan, also known as a convertible mortgage, will vary with the lenders rules.
A fixed interest rate is typically a higher rate to start out with. Let's say for example that the fixed interest rate is 7%. The benefit of this is that you know exactly how much you are expected to pay every month and this amount will not fluctuate based on what the federal interest rate is.
A variable interest rate will generally start at a lower rate, say 5% for example. This sounds like a good deal, and it may very well turn out to be. The primary factor here is what the federal government will do with interest rates over the life of your loan. If five years from now the federal interest rate increases to 8% then you will be expected to pay more on your monthly payments. This variable rate can save you money if the federal rate stays lower than what the fixed rate loan would have been for. However, if the variable interest rate increases, then you will be paying more, at least until the federal interest rate changes directions again.
A combination loan will incorporate the best of both of these interest rates depending on the lenders rules and requirements. You will want to ask your individual lender about how these work at their particular institution.
Once you have decided upon a lender and the type of interest rate that is best for you and your situation you need to be sure to review every bit of the paperwork closely. This is done for your protection and will take some time. It may be in your best interest to have a trusted friend or advisor review this paperwork with you. You want to make sure that there will be no surprises or hidden fees that you will have to pay on the mortgage. Again, remember that this will be a very long-term loan and that the details are extremely important.
If you have any questions at all about the terms of the loan, do not hesitate to ask the lending institution before signing. Any lender worth doing business with will be willing to answer all of your questions and will be upfront and honest with you. If the lender that you have selected shows any hesitation about clearly explaining the details of the loan, then you should seriously consider finding a different lender.
About the Author:
Ethan Deville writes about finance. PersonalHomeLoanMortgages provide mortgage information to borrowers. They also help consumers by providing mortgage refinance calculators and local home loan rates. Visit www.PersonalHomeLoanMortgages.com to learn more.
