Sharon Henderson
Realtor® ABR, GRI, QCS, SFR
Form Object
Call: 540-448-2960
Your Dreams are My Priority
Financing Your Purchase
Almost all home buyers finance their purchase, meaning they obtain some type of loan.
There are many types of loans out there. We can discuss what type of loan is right for you.
Following are some commonly used financial terms:
Mortgage Financing: can be obtained through mortgage bankers, mortgage brokers,
savings and loan associations, credit unions, banks, and insurance companies. To apply
for a loan you must complete a written loan application and provide supporting documentation
such as paycheck stubs, tax returns, bank statements, etc.
Loan Term: The length of the mortgage is typically 30 years but there are 20 and 15
year mortgages available. With a 30 year mortgage, your monthly payments will be lower but overall you
will pay more interest on the loan.
Principle: This is the sum of money borrowed to purchase your home.
Before the principle is financed, you can give the lender a sum of cash called a down
payment to reduce the amount you need to borrow.
Interest: Expressed as a percentage called an interest rate, interest
is what the lender charges you to borrow the principle.
Point(s): Additional loan costs are often expressed in points. A point is one percent
of the financed amount of the loan. These costs are generally rolled into your mortgage payment.
Fixed-Rate Mortgage:With a fixed rate mortgage, your interest rate stays the same for the term of the loan.
Initial interest rates tend to be higher than with other types of loans, but protect you from the risk of rising
interest rates.
Adjustable-Rate Mortgage (ARM): ARMs usually offer a lower initial interest rate than a fixed-rate mortgage
but your monthly payment can fluctuate depending on the current interest rate.
APR: The Annual Percentage Rate is designed to represent the "true cost of a loan" to the
consumer. In addition to the interest rate on the loan, it factors in other terms such as points,
processing fees, underwriting fees, and pre-paid interest (the interest paid from the date the
loan closes to the end of the month). The Federal Truth in Lending law requires mortgage
companies to disclose the APR when advertising an interest rate to prevent lenders from
offering a low rate while hiding fees.
Private Mortgage Insurance: If you borrow more than 80 percent of the value of the home, in other words,
give less than 20 percent as a down payment, lenders consider your loan riskier and therefore
require insurance on the loan by an outside organization such as the Veteran's Administration, the Federal
Housing Administration, or a private mortgage insurer. Once you've paid down the loan to within
80 percent of the property's value and have had good payment history, you can request cancellation of the PMI.
Closing Costs
In addition to the earnest money deposit and down payment, you
should keep in mind the amount of money you will need for closing costs. Closing
costs are the miscellaneous fees charged by those involved with the sale of the home such as
your lender for processing the loan, the title company for handling the paperwork, surveyors,
inspectors, local government offices for recording the deed, etc. Typically closing costs amount
to around 3% of the price of the home. Your lender
will give you a "good faith estimate" of the closing costs during the loan process.
Buyers and sellers can negotiate on paying part or all of the closing costs as part of the sales agreement.