So you want a house loan!

Most first time home buyers are not aware of what it takes to acquire a house loan, or as it is usually called a mortgage.  In the first round it can make their heads spin with all the jargon, legal terms and requirements, seems so very complicated!  But no worries, it not as bad as it sounds and with a little reading and guidance one will have the confidence and conviction in obtaining their first house loan or as they say, “mortgage”.

First you will hear the term mortgage being referred to more than house loan. A Mortgage is a loan to purchase realestate; the word “mortgage” itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. The two common features of a mortgage is its principal and interest.

There are basically two types of mortgages; fixed and variable, otherwise called Adjustable Rate Mortgage or ARM’s for short.  Both have their advantages and disadvantage and one should consider carefully before choosing as you could be locked in to a nightmare for a long time.

Fixed Rate Mortgages are loans that are set at borrowing and have fixed payments that remain the same for the life of the loan. To many, the advantage is the ability to plan way into the future.

Adjustable Rate Mortgage are loans whose payments will go up or down depending on changes in interest rates and are linked to specific index or margins.  It can be a bit more tricky, but does have it’s advantages if the rates trend down.

Mortgages are available in 15 or 30 years life span, generally. Both have their advantages as well.

30-Year:

- In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.
- As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.

15-year:

- Loan is usually made at a lower interest rate.
- Equity is built faster because early payments pay more principal.

First Time home Buyers now have the opportunity of several affordable mortgage options which may help alleviate some of the problems that made purchasing a home difficult in the past.  Lenders may now be able to help borrowers who cannot afford the down payment and closing costs, and or have no or a poor credit history, have long-term debt, or have income irregularities.

So as a first time home buyer it is best to educate your self as much as possible before starting on the journey of purchasing a home.