No matter what stage you're at in the home-buying process, the terms We've defined below will help as you learn how to make an offer you're comfortable with and that the sellers will love. A real estate agent will reference these definitions, but for newbies, it's nice to understand the 'simple' answer.
Mortgage
You can change the repayment terms on a loan by choosing a 15-year fixed rate mortgage instead of a 30-year fixed rate mortgage, which means you'll pay off the loan principal and accrued interest in 15 years instead of 30. This will increase your monthly payment, but will decrease the total amount of interest you pay over the life of the loan. Note: there are many different types of mortgages!
Down Payment
Not only will it affect how much you’ll need to borrow, it can also influence:
-Whether your lender will require you to pay for private mortgage insurance (PMI). -Typically, you'll need PMI if you put down less than 20% of the home's purchase price.
-What type of loan is best suited to you, such as a fixed-rate or adjustable-rate mortgage.
-Your interest rate. Because your down payment represents your investment in the home, your lender will often offer you a lower rate if you can make a higher down payment.
Closing Costs
These costs vary widely from transaction to transaction. Your realtor and lender can assist you with learning more about the closing costs for which you will be responsible, but you can safely assume an average between 2%-5% of the purchase price.
Remember, you as a buyer are responsible for paying your closing costs in addition to your down payment. So while you might have $30,000 saved up for a 20% down payment, you will also need additional funds to afford closing costs.
Possession Date
At closing, you officially own the property. However, you may have agreed in your purchase agreement to allow the former owners to keep possession of the property until a later date. This means that although you have paid the down payment, paid closing costs, and are now responsible for the mortgage, you still do not have the right to move into your new home.
Buying a house is complicated! But once you find the one that makes you feel at home, the headaches seem to be worth it. Best of luck to you all - please don’t make an offer on the same homes I do!
*This content is not to be used a financial advice. Speak with a licensed professional realtor and mortgage lender.