New Home Loan Vs Existing Home Loan
Do you know that new home construction loans are different from the ones that are used to buy existing homes?
As a home buyer, it is important that you understand what a new home construction loan is all about.

Mortgages granted to buy already built homes use the built home as collateral for the payment of the loan. In case you default on mortgage payments, the bank takes ownership of the home and sells it to compensate for the unpaid mortgage.

What is New Home Construction Loan?
As the home is there to serve as the collateral, a mortgage can easily be arranged for buying an already built home.

But in the case of home that is yet to be built, the bank has to grant a loan for the construction of the new home based only on the value indicated in your application form. But Is the signature of a Tom, Dick or Harry is enough for the lender to grant mortgage?

Understandably, the financing process for new home construction loan is very stringent. Once the lender agrees to grant you a new home construction loan, a draw schedule is outlined. A draw schedule is one document in which the lender describes in detail how the loan will be disbursed.

The usual practice is that a new home construction loan is disbursed in 25% increments. To get the next 25% of the loan amount, you have to establish that 25% of the construction work has been completed. For this the lender requires an appraisal report on the progress of the construction.

In a new home construction scenario you need not make any payments to the lender until the first part of disbursement has been made. The good news is that it is enough that you make payments for only the disbursed portion of the loan. As construction work progresses, more portions of the loan will be disbursed and the monthly payment that you need to make will gradually increase.

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As your home is completely built, the full new home construction loan will be waiting for you to be paid. But there is a way out to pay this well in advance. Here is how.

Before your new home construction loan is approved, the lender will require you be first approved for a mortgage. This requires a commitment letter from your mortgage lender. Once the home is built, the mortgage amount can be used to repay the balance of new home construction loan.

One-time Close Vs Two-time Close
Your new home construction loan can be either one-time or two-time based on the time at which the interest rate is locked in. With one-time closing, both new home construction loan and the mortgage close simultaneously. With two-time closing, new home construction loan closes first and the mortgage gets closed only when the home is fully built.

Mortgage down payment is the amount you pay initially. Some lenders help the buyers without a mortgage down payment. But many of them demand that you make a down payment initially. So it is wise to save as much as you can for the mortgage down payment and this article is all about that, mortgage down payment. More over mortgage down payment has its own benefits as well even for buyers.

Mortgage Down Payment Helps to Buy Higher Priced Home
The more mortgage down payment you make, the more you can afford to pay for your dream home. Let me explain this with an example. Say, given your income and debt information, you get a $100,000 as home loan from a lender. Then you can buy a home priced at the maximum of $100,000. But you are ready to make a $10,000 mortgage down payment you can purchase a home priced higher than $100,000.

Mortgage Down Payment Results in Decreased Monthly Payment
If you make a mortgage down payment, the amount that you have to pay every month towards your home loan gets reduced considerably. Therefore, the more mortgage down payment you make the lesser you have top pay every month. Lnders have found that there is a higher rate of mortgage default among buyers who normally make mortgage down payment less than 20% of the sale price. So they make you pay less every month if you make considerable mortgage down payment.

Lower Mortgage Down Payment Requires PMI

If your mortgage down payment is less than 20% of the sale price of the property, you have to pay private mortgage insurance. This will protect the lenders in case if you default on your home loan payment. Every month you have to pay private mortgage insurance till you acquire at least 20% equity in the home.

Saving for Mortgage Down Payment
You may realize the importance of saving for mortgage payment but yet find it practically difficult to save money. Saving money requires adjustments in your spending. Putting things on paper always helps especially when it comes to money, writing down the figures help you analyze them closely.

Document your income and monthly expenditure. From this you can get an idea on how much you spend and on what you spend. From such an analysis of your spending habits you can cut unnecessary expenses and save money. You may be required to change your life style drastically as saving for mortgage down payment means saving huge sums of money.

But you cannot cut all expenses. There are some mandatory expenses like housing rent, food, medication, transportation, food etc. Though you can not cut them altogether you can tailor your needs so that you spend less on the absolute necessities.

Few other tips to save money for mortgage down payment are:
• Save on electricity consumed to reduce the power bill
• Control impulse spending

A considerable amount of mortgage down payment from your part will help you in the long run.
Have you already started saving for it?

Good Luck!

Shopping for a Home Mortgage
When you decide to buy a home you need to realize that shopping for a home mortgage is as grueling as shopping for the home itself. Getting the information about the elements of home mortgage and the types of home mortgage will help you make correct decisions on home loan and get the best deal.

4 Elements of Home Mortgage

A home mortgage comprises four important elements:
1. Principal
2. Interest
3. Taxes
4. Insurance

Principal is the actual amount of money that you are borrowing from the lender as your home mortgage. Any down payment you make together with the principal is paid to the seller of the home in order to effect transfer of the property to your name.

Interest is the extra money you pay to the lender towards the cost of borrowing home mortgage. Interest is usually expressed as a percentage of the total amount of money that you borrow from the lender.

Taxes. In a home mortgage transaction, property taxes that you have to pay are paid in an escrow system till the deal is finalized

.Insurance. If your down payment is less than 20% of your home mortgage, you will be required to pay PMI, private mortgage insurance.

Types of Home Mortgage
In a real estate scenario several types of home mortgage are offered.

You can select the one which best suits your financial situation. Two major types of home mortgage are:
• Fixed rate mortgage (FRM)
• Adjustable rate mortgage (ARM)

In a fixed rate home mortgage, as the name indicates, the interest rate is fixed and it does not change at all throughout the loan duration. Here your monthly mortgage payments remain constant. Fixed rate mortgage is easily available for 10, 20 or even for thirty years.

In adjustable rate home mortgage, the interest rates keep varying depending on the current market rates. In ARM, the initial interest rates normally lower than that of the FRM. If you wish that your monthly mortgage payment to be less at the initial years you can go for ARM.

When choosing a home mortgage type, you have to consider several factors the important one is the time duration over which you are about to make the repayment. If you plan to live in your home for long, you can conveniently choose fixed mortgage.

Balloon Mortgage
Balloon mortgage is yet another type of home mortgage. In this kind, for the first five to seven years interest rates are very low. After that stipulated time, entire home mortgage amount is due and you have tp repay it in wholesome. This kind of home mortgage is very apt when you are planning to resell your home.

Choosing the Right Type of Home Mortgage
The right type of home mortgage that best suits is largely and solely depends on your financial situation. The factors that you have to consider when selecting the home mortgage type are:
• Length of the time you wish to live in the home that you buy
• Your career, your salary and the time duration over which you will repay your home mortgage. Do you foresee any salary increase? Do you expect job change? These factors are also to be considered.
• Cost of your home mortgage is another key factor. You can negotiate with your lender for less interest rate and less costs.

Choosing the right home mortgage that best suits your financial situation is very important that you make the repayment of your home loan without any major financial crunch. To do that, you have to equip yourself with the complete information about it.