Quality Financing

Some Things You Should
Know About Financing

You’ve decided to take the plunge and purchase a home. Now we need to talk about the basics of financing your new home. The basic procedures are:

1. Down Payment

The minimum down payment is 5% for a conventional loann, 10% is better because that will allow you to obtain a lower interest rate.
For example, 5% down will usually get an interest rate of 7.50% while 10% down will get you 4.75 to 7.50%.

2. Terms

Terms mean how long you will actually finance the home you are purchasing. You have the option to finance you home for a minimum of five years to a maximum of 30 years.

The shorter the term, the less interest you pay. However, a shorter term means higher monthly payments. So your payment needs to be calculated to fit your budget.

Another advantage to a short term loan, is you, the homeowner, will build equity quicker and are in a better position to sell in the future.

Before you panic, if you do chose 30-year financing, make sure there is no penalty for pre-paying. This allows you to pay extra during the year and bring the principal down with the same effect as the shorter term financing.

Learn About Interest Rates

Interest rates may be fixed or variable, and there are many special programs which can reduce your inital payments. If you opt for 20-30 year financing you can purchase points (that can be financed) which will bring your rate down as much as one full percentage point.

The more cash you are able to pay down, the lower your rate will be.

For example:

5% down = 7.50% (W.A.C)
10% down = 4.50-7.50% (W.A.C)
15% down = 6.75% (W.A.C)
20% down =5.99% (W.A.C)

The 7.50% could be brought down to an actual 6.50% interest rate with the point system lenders offer.

The better your credit, the lower rate you deserve, so don’t be shy about asking for preferred rates if you have excellent credit. Both you and your dealer should be concerned about getting the best financing possible on you new home.

What sense does it make to argue over a few hundred dollars on the price of a home, then never ask about financing options that could potentially save you thousands of dollars?

And Just What Is My Best Payment?

The best payment is the highest you can comfortably afford to pay. Remember, the higher the payment, the shorter the term and the less interest you pay. Put things into perspective - a new home is your most important and expensive possession. Why will people pay a combined payment of $1,000 on cars and boats, but want $300 house payments?

Budget for the home your family deserves. A $750 payment today will seem low five years from now. Many people mistakenly do not budget a high enough house payment. If you tell yourself that you can only afford $500 a month, when you look at a quality home you may think you can only afford the smallest home.

Compromise a bit on your payments, say to $350 per month, and purchase a quality home. You and your family deserve it.