Home Loans for New and First-Time Homeowners

Home loans aren't all the same, and before buying property, it's important to answer a few questions to determine which mortgage type will offer the lowest overall cost. For loan applicants who aren't inclined to remain in the home for more than a few years, their loan type will differ from a family who wants to purchase a home and remain in it for a decade or more.

Additionally, the mortgage rate will differ as far as its predictability is concerned. A future homeowner will need to choose whether low rates and unpredictability are better than higher rates and better predictability.

One of the riskiest mortgage types is an adjustable-rate mortgage. In fact, so risky that some residential and commercial mortgage lenders won't offer them to their clients. Though Commonly abbreviated as an ARM, this loan features a static interest rate for a fixed period of time at the start of the loan.

After that introductory period is complete, interest rates on these home loans change. Rates may change every year if the mortgage is a one year ARM. If a future homeowner feels confident he or she can maintain payments on the mortgage even if the interest rate changes dramatically, an ARM is one of the best ways to qualify for a higher loan amount.

New Rules Apply For Loan Applications For Home Loans

Homeowners who intend to move after only a few years in a house often consider an adjustable-rate mortgage. However, bank and loan experts usually recommend that a buyer has some equity or savings to handle payments on the loan in the case of a dramatic change in interest rates. One of the ways a first-time homeowner can ward off potential interest rate changes on home loans is to make payments above the minimum amount required.

These extra payments will build equity, which may be used to refinance the loan if interest rates take a dramatic turn. Even if a homeowner only plans to live in a home for a few years, paying as much as possible on a mortgage usually makes the most sense.

One of the essential features to understand regarding mortgages and real estate loans is that most of the payments made at the start of the loan will go toward interest while only a small portion of the payments will go toward paying down the principal. An amortization table is the best way to see how payments will be applied to home loans over time. It's helpful to take note of the interest paid based upon how long a homeowner plans to stay in the home and whether the loan is an adjustable-rate or fixed-rate.

Various Home Loans To Tailer To Each Individuals Needs

Opposite from the adjustable-rate mortgage is a fixed-rate mortgage. These popular home loans usually require a look at 30 year mortgage rates, particularly if a new homeowner is interested in having as much control as possible over future payments.

If a homeowner with a fixed-rate mortgage sees that rates have tumbled since he or she applied for the home loan, refinancing is an option; however, refinanced loans require a new round of closing costs. Essentially, a refinanced loan is a completely new loan with new rates, a new amortization schedule, and different monthly payments.

When using a refinance calculator, it's important to add the expected closing costs into the form so as to ascertain whether a rate change and refinanced loan will actually result in lower over cost. When a future homeowner starts inquiring about a mortgage, questions that need to be answered include how much equity the borrower has, the size of the loan sought, and the length of time the borrower intends to hold onto the property. Because home loans tend to represent significant investments, loan type and interest rate may greatly influence the overall cost of owning a home.