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MORTGAGE
Mortgage is financing from financial institution for purchasing a property. You borrow certain amount of money for specific period of time with interest. It is the better for you to put down least down payment and borrow most money. If you have the money and put it in investment where you can get a better return than just putting it to purchasing a house, it is a wise idea to borrow most as possible and put least as down payment.
Interest rate is reflected to current prime rate, personal credit scoring and income. The higher tax brackets you are in, the less annual percentage rate (APR) you will get for your mortgage. If the lender sees you as more risk, you may get higher interest rate than a person who has good credit and good income.
The best mortgage possible is fixed mortgage for 30 years at a good interest rate. For adjustable rate mortgage (ARM), you will pay higher interest if the interest rate goes up higher, resulting higher monthly payment. How much you can borrow is determined by your gross income and loan to value ratio. For example, only 28% of your monthly gross income can contribute to pay principal, interest, taxes and insurance monthly. Also, for conventional loan for example, only 80% of purchase price can be borrowed, 20% can be paid with cash or other financing.
There are many different mortgage programs to fit individual's needs. For first time home buyer, there are government programs that will guarantee the mortgage. Some programs such as FHA or VA helps first time home buyers to purchase property with 3-5% down payment. Banks are glad to lend money for FHA or VA backed mortgage since the government guarantees when loan is in default.
When you get mortgage financing from financial institution, there are additional cost other than principle, interest, taxes and insurance. Borrower may have to pay a point which is 1% of your mortgage at settlement. If you have a point or not, it depends on what interest rate you pay. Some may have lower interest rate with a few points. Points have to be paid in lump sum at settlement. You should calculate if is more beneficial to get higher rates with no point or lower rate with a few points. Sometimes, it is better not to have any points to pay even with little higher interest rate. There is also an escrow account fee for property taxes and home insurance when you put less than 20% down payment.
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