Buyers Are Allowed To Put Down As Much Money As They Wish

Category: Finance.

Learning more about the basics of mortgages can help consumers better understand the home loan process and possibly keep some from getting into trouble.

A mortgage is a loan contract or legal agreement between the lender and the buyer. What exactly is a mortgage? The mortgage will contain important information about the loan such as the interest rate that is being charged, the amount of the loan, and other information, the payments, some of which is required by law to be in the contract. The down payment is the lump sum of money that has to pay upfront that will reduce the amount of money you have to finance through the lender. What is a down payment? Buyers are allowed to put down as much money as they wish.

A normal mortgage payment is made up of: Principal- This is the total amount of money you are borrowing from the lender. The more money that is put down the less the monthly payments will be. This is the amount of money that you are financing through the lender. It is a percentage of the total amount of money you are borrowing. Interest- This is the amount of money the lender charges for giving you the loan. Taxes: In many states, the money that is needed to pay property taxes is put into an escrow account or is paid at the time of the closing.

In other words, a portion of your property tax is added to your monthly mortgage payment and held in escrow until it is due. In other states, the tax money is put into a third- party account until it is time to pay the taxes. Insurance- There are many kinds of insurance that can apply to a mortgage. You may also have to buy flood insurance if the home is in flood risk zone. You may have hazard insurance which is used to protect you against losses from fire, theft, storms, and the like. If you cannot put down at least twenty percent of the home s value, you will have to buy private mortgage insurance.

All of the above is usually referred to as PITI. This is also known as PMI. For the most part, home mortgages are paid off in incremental payments. In the latter years, more goes toward paying down the principal. In the early years of the loan, most of the payment goes toward paying the interest. This is known as amortization. This will help to reduce the length of time, and the amount of interest, on the loan.

Once the loan goes into effect, homeowners may wish to make additional payments on the loan. Sub- prime loans are those loans that are issued to people with less than perfect credit histories. Prime loans are issued to those with good credit and they are usually less expensive because they have lower interest rates. These loans can have any number of terms and are usually adjustable rate mortgages. Prime loans can be either adjustable rate based, or they can be fixed- rate based.

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