Are you thinking of becoming a homeowner for the first time but unsure of the type of property you can afford? If you’re a first-time homeowner, you might not be aware that various factors must be considered when calculating a mortgage payment in addition to the loan amount.
This blog will teach you the essential loan terms you should understand before getting a new house.
The total contract price for your house isn’t the one you saw first on a real estate website. You and your agent would have to agree on the final price. However, there are some instances when the total sum you’ve decided to pay for your home might be the same, but it’s more likely that your home price will be either greater or lower than that number.
Most lenders need a down payment when you apply for a traditional mortgage. A down payment is a portion of the total loan amount you pay up in advance before closing the mortgage. Lenders require a 20% down payment to avoid paying private mortgage insurance.
Therefore, if you’re buying a $300,000 house, you’ll need to put down $60,000 before the loan closes. Your down payment reduces the total amount you borrow.
The length of your mortgage is known as the loan term. Say you take out a 30-year house loan; you’ll be required to make a specific monthly payment for the duration of the loan. Your mortgage is paid off when the loan term expires.
Although the terms of mortgage loans can vary, most borrowers opt for a fixed-rate 15- or 30-year mortgage. By altering the loan terms, you may change your monthly mortgage payment.
Lenders calculate this interest as a percentage. For instance, a 4 percent interest rate indicates that until the mortgage is paid off, you will pay 4 percent on the whole loan.