Mortgage Financing For Your Home

Almost all home loans are made on the basis of monthly payments which extend over a long period of time – from 15 to 30 years. These monthly payments include repayment of the principal and interest, and may also include taxes and insurance. Home loans (often referred to as mortgage loans) are made with the understanding that if payments are not made, the lender will foreclose the mortgage – that is, take ownership of the home.

The larger your down payment and the shorter the length of the loan, the less interest you will pay. Since the interest you will pay may run between 5% and 6% a year, you can save quite a bit of money by holding the amount of your home loan down to a minimum and by paying it off in the shortest possible time. On the other hand, it is not wise to make a huge down payment just to save interest charges, if by doing so, you become so strapped financially that you cannot furnish your new home nor enjoy living in it. Another thing to keep in mind: if you think you may be transferred to another town, but still would like to own your own home for the time being, it’s a good idea to buy it with a low down payment. If your equity in the home is small, it will be easier to sell when the time comes to move.

Newly married couples eager to buy a home – perhaps before they are truly able to afford it – are sometimes lured by “No Money Down” and “Closing Cost Down” offers, particularly in parts of the country where there is a pronounced population growth and a corresponding real estate boom. Often these “deals” offer monthly payments which arc lower than rent, and it all sounds deceptively easy. However, once the family moves in, it decides that it needs drapes, carpeting, a fence, or other improvements. For each of these they can rather easily get an FHA Title I improvement loan. As a result, the family may find itself overloaded – committed to monthly payments which total a great deal more than rent would have, and which are more than the family can afford. Look at the total picture – and look at it realistically – when planning to finance the purchase of a home.

Home loans can be obtained from savings and loan companies, savings banks, commercial banks, insurance companies, and individual lenders. Contrary to what many people seem to think, Federal Housing Administration (FHA) is not a lending agency; it merely insures loans made by the financial organizations we have mentioned. Many medium-priced and low-priced loans are guaranteed by FHA or, in some cases, by the Veterans Administration (VA). Before the FHA will guarantee a loan for your home, it checks to find out how much money you are making, how much you can expect to make in the future, what it will cost you to live in your home, and what other debts you have. You can usually get a bigger loan if it is insured by FHA than you could otherwise get.