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First Time Home Buyer
Buying a home for most of us is the biggest investment in our lives. And of course, an additional payment that you have to pay each month. As a first time home buyer you need to understand risks involved when it comes to mortgages. Loan Products quick overview: There are many loan products out there but here are few that you should strongly consider, just because it is easy to understand them. Do not get into a mortgage that you have no idea how it works, otherwise you will pay for it. Fixed- Often the best choice for many borrower. You have one monthly payment and interest rate that will not change for a length of a loan. For example 30 year fixed at 6.00%, will be for 30 years the same. This way you know what you pay each month. Adjustable Loan - Adjustable loans offer many variety of loan programs. For example 3/1 ARM is simply fixed for 3 years, that means for 3 years you will have same payment and same mortgage rate. What about after the 3rd year? This is the time the payment and rate will adjust. It will adjust to what your index and margin rate is, which is set by a lender. Index however, is published in many newspapers and web-sites and it adjusts monthly, weekly etc. No one can predict index where it might be in 3 years. But it may happen that in 3 years may go up and therefore you will be paying more after 3 years. Oo simply refinance, and again get fixed mortgage rate. There has been a talk about 1% loan, neg-am loans and so on. Be very careful, you can very easily get qualified for this kind of loan but, 1% isn't really the interest rate on the mortgage, it is simply the rate used to calculate the minimum required payment for the first year. The actual interest rate charged on the loan is equal to the index plus the loan margin. The interest usually will adjust on a monthly basis. Many lender will tell you that 1% loans offer three mortgage payment options, which is a good idea to make a payment on mortgage of your choice. But let's quickly review what those options are and what they do. Principal and Interest Payment - This payment includes all interest due along with the amount of principal necessary to pay the loan off over a 30-year period. Interest-Only Payment - This payment is only the interest due on the mortgage. When no principal is paid, the outstanding balance remains unchanged. Minimum Required Payment - This is where the 1% comes in. The amount paid is actually less than the interest due. The remaining interest is added to the principal balance, which increases the outstanding balance on the mortgage. You actually will owe more than what you borrowed. This is called negative amortization. You have to be careful what loan program you are getting into.
Every lender is looking to make money on the deal and that is it for them, you
are the one stuck with the payment so be careful what you can really afford.
Learn about different loan programs:
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