Everything about Financing Your Home Purchase

Financing your home purchase is probably the one area of the real estate transaction that most potential home buyers dread. Not only is the process time-consuming, it can also be expensive. When you finance your purchase, you are essentially taking out a loan to pay for the purchase price of the home. The terms of this loan will depend on the type of home purchase you are making - a fix-and-flop mortgage, an interest-only mortgage, or a repayment-in-full mortgage.

There are advantages and disadvantages to all three types of financing. If you are planning to finance a home purchase with a fix-and-flop mortgage, you can borrow up to the full amount that you will pay for in the first five years. You will not have to worry about paying extra money for interest or finance charges. This is a good option for buyers who have perfect credit and great credit history. For people with bad credit, however, this option may not always be available.

Interest-only mortgages are a great option if you need a lower monthly payment, but you are able to stretch out the length of time you take out the loan. This type of financing allows you to make a larger down payment, but you will end up paying more interest over the life of the loan. Repayment mortgages require that you make your monthly payments for a year or longer before you start making payments again. Either option is good for buyers who want to keep the monthly payments as low as possible. Buyers who can qualify for an FHA mortgage may also be eligible for a greater amount of financing for their home purchase.

If you decide financing your home purchase using an interest-only mortgage, you should know that the terms will be stricter than if you use a repayment plan. Generally, you cannot go over your credit limit with an interest-only mortgage. Some lenders will let you continue paying extra on the mortgage if you have sufficient income to repay the loan within a year. With a repayment mortgage, you can choose to pay the full amount at the end of the term, or you can choose to extend the term so that you'll pay less interest.

Another type of financing is called a "moderation" mortgage, which allows you to borrow only a percentage of the amount you'd like to borrow. You would borrow more than the entire mortgage if you used a repayment plan. These mortgage options are a great choice for borrowers with good credit and lots of money to spare.

If you're planning on obtaining a conventional loan, there are several things you need to consider. One is closing costs. Most homeowners overpay for their loans because they fail to factor in closing costs, which are based on the interest rate plus points. A lot of people fail to factor this into their loan calculations, because they think that they don't need to pay any more than 3% in closing costs. Although the 3% might seem reasonable, you should still add several hundred dollars in other fees and costs to the total amount you borrow.

Another thing you need to factor in is your payment requirement. The minimum payment amount for most mortgages is often set at a number of percentage points higher than the average cost of your homes. Most lenders require you to pay at least this much, regardless of your situation. Be sure to shop around and do some comparison shopping before finalizing your mortgage loans.

For all these reasons, it's important to have an experienced and knowledgeable real estate agent help you with financing your home purchase. Real estate brokers have access to hundreds of different lenders, which enables them to find the best deals on mortgages and other home purchase financing options. The bottom line is that there are many different types of financing options available to you. The wrong loan decision could cost you thousands of dollars in wasted funds, while a carefully chosen and executed loan can save you thousands of dollars over the long run.