2 Things You Need To Know About Getting Your First Home Loan
Buying your first house is so thrilling. The thought of owning a home, building equity, and laying down roots can be exhilarating for many people. But before you are able to purchase a home you are going to have to go through the mortgage process. If this is your first time going through the process there are some important things that you should know so that you know what to expect. Here are some tips.
1. Start Saving Now
Getting your first down payment can be really hard. Once you have equity in a home, you can generally take the equity from your house when you sell it and use the equity as a down payment for the next house. However, if it is your first time buying a home, you will have to save up for a down payment. Some people get the down payment gifted to them through friends or family, others choose to put less down, or others move to areas where there is a rural home loan program where you don't need to put money down.
As a generally rule the banks will ask that you put down around 3% of the home loan. If you can put down more than 20% you can get out of paying private mortgage insurance, but for many people, coming up with 20% can seem impossible. This is why you should shoot for at least 3% and then move up from there.
2. Know That Your Interest Will Be Front Loaded
One thing that many people don't understand when they first buy a house is that the interest on the loan is front loaded. This means that although you may be paying $1000 a month in your mortgage payment, the actual amount that you are paying toward the principle on the loan is not $1000. In fact in the beginning the majority of the payment will all be interest. Then as you move farther and farther into the loan, you will pay more on the principle. So for the first couple years, you aren't building much equity in your home. It isn't until after some time as passed, even years, till you will really be making a dent on the principle amount. Then toward the end of the loan, you will be paying hardly any interest and the majority of your payments will be principle.
By understanding these things you can be better prepared for your first time home buyer loan.