FTHer series - 5. Basics of a Loan

You can’t purchase a home if you don’t have funding - which means learning the basics of a loan is essential. All your hard earned money and your future monthly payments are determined by your loan. Doesn’t it make sense to learn as much as you can about it now? Below are three important topics you need to have a grasp on when shopping for a loan:

 - DOWN PAYMENT. A significant amount of money can be put down toward the purchase of your home in this category - or none at all. This depends on several factors, two important ones are what your loan requires you to put down and how much money you have. In order to get some loans, you need a 3% down payment of your purchase price. Let’s say your first home will be around $325,000, your down payment of 3% will be around $9,750 dollars. That is a frightening number for most - but don’t let it scare you, 100% loans are still out there, though few and far between. If you were to get a 100% financing loan you wouldn’t need a down payment. Just remember that your down payment can determine your monthly payments. The more money down, the smaller your loan is, thus making your monthly payments less.

 - TYPE OF LOAN. Jumbo, FHA, VA, 100%, there are heaps of different loans out there but don’t fear your loan officer will make sure you get the one that fits you. This portions requires a full blog - breaking down different types of loans and we’ll deal with that another day.
 
 - RATE. If you’re looking to buy sooner than later you’re in luck when it comes to rates. Some are as low as 5.75% but can go all the way up to 12%+. Just like your credit cards, you want a rate that’s low - meaning you’ll pay less each month to your lender for borrowing the money. Here are two types of mortgages rates:
    1. Adjustable rate mortgage (ARM) - These rates start out with a fixed rate for a certain period of time, than after that term the rate adjusts typically to a higher amount.
    2. Fixed rates are what’s most desirable. You lock in a low rate and a loan to be paid off anywhere from 15 to 30 + years. By locking in a rate, there are no surprise with rates moving up and down, giving you piece of mind with your monthly payments.

All the topics above will be addressed with your lender when shopping for a loan. I can’t stress how important it is find a trust-worthy lender that communicates with you, just like your Realtor. When the time comes I have a list of lenders you can talk to.

We’ve just scratched the surface with loans and the money involved with purchasing your first home - we’ll cover it all with time. Again, if you have any questions or comments please post by clicking the ‘post a comment’ link below or contacting me personally.

This blog is specific towards residential real estate in Southern California and is intended for informational purposes only and should not be construed as real estate or financial advice. The information in the blog is opinion of Sara Kirk and not the opinion of Tarbell, Realtors. When posting a comment your personal information will not be shared or sold to anyone.