FINANCING 101!

February 7th, 2008

If you’re not a homeowner, you might be confused by the commotion surrounding loan defaults and foreclosures. Learn more by understanding the basic terms used to describe a mortgage.

A mortgage is a loan to finance your purchase, and uses the home as your collateral, which the lender can take back if you don’t pay your debt. That debt is usually paid monthly or by-monthly, and payments always include Principal and Interest and quite often Taxes and Insurance. (Referred to as PITI)

Principal is the sum you borrow, reduced by how much you can offer as down payment. Interest, as a percentage rate, is what the lender charges as a fee to use the money you’ve borrowed. These two items make up most of your payment, and “amortization” over the life of the loan makes early payments mostly interest, while later payments mostly apply to principal.

Taxes are the local levies, based on the value of your home, used to fund schools, roads, and other services in your community. These are paid directly by you or by your lender on your behalf from funds held in an escrow account if your payments do include Taxes and Insurance.

Insurance is required by the lender to protect your home against loss and damage. Private Mortgage Insurance protects the lender against riskier loans, and many buyers couldn’t qualify to buy a home without it. Thus begins your education toward a smart and secure home purchase!

Call me at locally at 363-5464 if you need information to assist you with your real estate decisions. For Long Distance, call me at 1-800-724-7149 or e-mail me, if you prefer, at donkingsley@kingsleyrealestate.com. We will be happy to share our knowledge with you at no cost or obligation.

Entry Filed under: Buying A Home, Financing