Financing

Mortgage Basics

Let's start with the basics. A mortgage is nothing more than a loan that you obtain to close the gap between the cash you have for a down payment and the purchase price of the home that you're buying.

Your Down Payment

Before setting out to purchase a home, you should determine how much you will plan to put down. This covers the advantages of down payments of at least 20% of the purchase price as well as PMI (Private Mortgage Insurance).

Fixed Mortgages

Because the interest rate does not vary with a fixed-rate mortgage, its advantage is that you always know what your monthly payment is going to be. Thus, budgeting the rest of your personal finances is easier.

Adjustable Mortgages

Adjustable mortgages (ARMs) fluctuate with the market level of interest rates, and so does your monthly payment. Because this is likely to be a big monthly expense, an ARM that is adjusting upwards may wreak havoc with your budget.

Other Mortgage Types

One type of mortgage, known as a balloon loan, appears at first blush to be somewhat like a hybrid loan. The interest rate is fixed, for example, for five, seven, or ten years. However, at the end of this time period, the entire loan balance becomes due.

Applying for a Mortgage

Getting preapproved is a sign of your seriousness to house sellers - it places a Good Borrowing Seal of Approval on you. In a multiple-offer situation, buyers who have been preapproved for a loan have an advantage over buyers who don't.

Common Problems

Your desired mortgage lender may very well reject your loan application if you appear to be stretching yourself too thin financially. If you know that you can afford the property in question, here are ways to improve your chances of gettting your loan application.

Evaluating Mortgages

Some mortgages come with a provision that penalizes you for paying off the loan balance faster. Such penalties can amount to as much as several percentage points of the amount of the mortgage balance that is paid off early.

Tax Issues

Profit is the difference between the price you pay to buy a home and the amount you receive when you sell it, less any capital improvements. There are also some great tax benefits you'll receive when you sell your house.

Reverse Mortgages Basics

If you are happy and content with your home but want more money to live on in retirement, a reverse mortgage may be for you. A reverse mortgage allows you to tap into the equity in your home while you still live in it.

Financing FAQs

Here to answer all the questions you may have.