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Finance Home Loan Mortgage - How to Finance Your Home Loan Mortgage - Do Some Preliminary Work, Mortgage Lingo

A Quick and Easy Guide to Getting the Money You Need for the House of Your Dreams

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Buying a home is a big proposition, and it could very well be one of the biggest financial decisions of your life. Almost all home buyers need to finance some of their purchase, and doing so can be overwhelming. This guide will help to demystify the home loan process so you can go in with confidence and get a great home for your future.

Do Some Preliminary Work

Before applying for a home loan, it will help a lot if you take care of some basic steps first. Some of these need to be thought of well in advance, so if you’re anxious to get a new house right away but don’t have these done yet, you could be in for some trouble!

First, virtually all legitimate home loan providers will require proof of income. This means pay stubs if you’re employed at a typical business, or detailed income records if you’re self-employed. Typically, lenders like to see at least a year of solid income records, and the more the better. So if you have been employed with fairly consistent income over the last couple of years, round up pay stubs that detail this period so you can give specifics when applying for your loan.

It’s also a good idea to determine exactly what you’re looking for in a home – size, neighborhood, features, or whatever is important to you. Then you can figure out how much money you will likely need in order to purchase it by looking at similar homes in your target area.

It’s also very important to your home loan interest rate that you start saving money now if you haven’t already. The more money you can pay up-front as a down payment, the smaller you can make your interest rate. Sometimes paying extra money beyond the down payment is referred to as purchasing “points”, and this can also lower your interest rate. Each point costs one percent of the total cost of the house. So if you are looking at a $100,000 house, once point is equal to $1,000.

Mortgage Lingo

ARM vs Fixed Rate
ARM stands for Adjustable Rate Mortgage, and this is where the interest rate fluctuates based on the movement of a predetermined market index. While sometimes it can get you a lower starting interest rate, the whole point of this interest rate is that it can and will change over time. If you want to have set payments that never change over the life of the loan, go with a fixed rate mortgage instead.

Mortgage Insurance (PMI, LMI)
If your down payment is less than a certain percentage of the loan (usually 20%), your lender may require you to pay private mortgage insurance (PMI), which insures them against the event that you are unable to pay your loan and the lender can’t recoup his losses. This normally costs around $55 per month per $100,000 insured.

Amortization
This big word simply refers to your fixed rate payment plan, including monthly payment amounts from both principal and interest over the entire life of the loan.

Closing Costs
Every house has closing costs, which refer to a big bundle of fees and taxes that must be paid upon closing. It includes things like homeowner’s insurance, recording fees, title search and insurance fees, and many other items that usually come up. See Yahoo’s Closing Cost Estimate Page to get an idea of average closing costs and their breakdown.

Find a Lender to Finance your Home Loan Mortgage

Now that you’ve done your homework and know what to expect, it’s time to find a lender to service the loan for your house. Sites like LendingTree.com offer you the ability to enter your information once and receive multiple loan estimates from different lenders. Or you can use a local lender, too – just make sure you deal with reputable lenders with good track records. A lot of good real estate agents will have recommendations on the lenders who they like to work with most, and that can be a good place to start looking.

That’s it for this quick guide on home finance. Mortgage lenders are everywhere, but using this guide can help you to both find the right ones and be prepared to meet them.

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