Although some people can buy a home with cash, the vast majority will need a home loan. For most, it's the largest purchase they will make in their life. The cost of your home loan financing may be greater than the cost of your home. Understanding how the home loan process works is an important part of the home buying process and will enable you to make good choices.
The process can be complicated and time consuming. However, we will work with you to explain the steps and make sure that the process goes smoothly - and that you get the home loan with the best rates and terms for you.
What are the actual costs of owning a home?
When you purchase a home, there will a number of costs to consider when evaluating the cost of the home that will be right for you. The major components include mortgage, taxes, association fees and private mortgage insurance.
- Mortgage - A mortgage is a home loan that will include specific terms regarding the amount, the interest rate and the number of years. The payments will be amortized so that you will pay a consistent amount over time that will include payments on both the principal and interest. Principal is the actual amount that you borrowed for the home. The interest is what the lender charges for the use of the money over time. In the early years, most of your mortgage payment will be for interest. Toward the end of the term, most of the payment will be to reduce the remaining principal.
- Taxes - Taxes are charged by the local government to pay for a variety of items including schools and maintaining infrastructure of your community. These taxes are based on an assessed value of your home. Although you have the option to pay them yourself without including a prorated portion in your monthly mortgage payment, many people choose to include this cost for the sake of convenience.
- Association Fees - The fees that you pay will be determined by the Association running your building or development. This money is used for the maintenance of the building, the landscaping, common areas and general maintenance.
- Private Mortgage Insurance - When you finance your home with a loan that exceeds 80% of the purchase price, lenders will require that you purchase Private Mortgage Insurance (PMI). This insurance is protection for the lender in the event of default by the borrower. When your principal has been reduced to less than 80% of the value of your home, you can eliminate this insurance and avoid the ongoing expense.
How do I find a good lender?
As you begin the search for the home loan that will be best for you, you should understand that there are different types of lenders. They include direct lenders and brokers. Direct lenders have money to lend and can make the final decisions for your loan "in house". Brokers are intermediaries that will search a number of lenders on your behalf to find a program that is best for you. Both direct lenders and brokers are very competitive for you home loan business - and will be very resourceful in putting together an attractive loan proposal. There are advantages to both and it is prudent to shop and compare. However, we strongly recommend that you choose to work only with reputable lenders that will be able to provide good service and deliver exactly what they promise. We have seen clients that have been unable to close on their home due to questionable practices on the part of the brokers. We will be happy to provide a number of proven lenders and brokers for your consideration and evaluation - and assist you with the comparisons of their proposals.