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This short video summarizes the main kinds of mortgages available for home buyers: Adjustable Rate Mortgage, commonly called “ARM” Fixed-Rate Mortgages Balloon Mortgages 2-Step Mortgages ARMs, as the name suggests, will change over time. As market interest rates vary, the mortgage interest rates and payments will vary with them. Buyers opting for ARM loans take on responsibility for meeting payments even if interest rates go up significantly. Fixed rate mortgages lock in interest rates for the entire loan. If the interest rate on a fixed-rate loan is higher than an ARM today, the rate and payments will not change in the years to come. Balloon mortgages are sort of “shaped like a balloon” — smaller at the bottom, bigger at the top. In financial terms, balloon mortgages provider lower interest rates for the early years of a loan — usually 5 years, 7 years, or 10 years. Then the balance and interest are adjusted and refinanced, which sometimes requires a large ‘balloon’ payment. Two-Step mortgages are like super-simplified ARMs. Interest rates adjust, but only one time. Other options for mortgages are available, and worth investigating for your particular situation. For veterans, VA loans are a frequently a great option; see the VA loan series on this site for additional details. Other government programs for non-veterans may also be available. Real estate professionals and lenders can help you make sense of the current market and the options that might suit you best.
As this video explains, cash committed to demonstrate sincere intent to go through with a detail is called "earnest money." Conditions and (sometimes) local customs may play a role, but an earnest money sum between 1% and 5% of the purchase price is typical. This is regarded as substantial enough to demonstrate good-faith intent. If agreement is reached through offer and counter-offer, the earnest money generally becomes part of the down payment or transaction closing costs. If agreement is not reached, earnest money is returned. If you back out of the offer/deal, you may forfeit the earnest money. Ask your real estate professional for guidance.
Youre ready to buy a house; how do you "Make an offer"? There is a formal process, and the real estate agent(s) will assist you. The offer will involve: Price: how much are you offering? Under what conditions? Time: when do you want to close? Move in? Financial Terms: How much are you offering in down payment? What financing details might affect the offer? Contingencies. Does the offer depend on any other events, such as the sale of your existing home? Earnest Money: what amount are you committing to show that you are in earnest about the purchase? Deadlines: how long is the offer valid? An offer will include the complete legal description of the property, and a few other formal details. Keep in mind, it is "an offer, not a deal." Buyers will frequently provide a counter-offer that changes some of the terms to meet their desired outcome.
Buying a home is so complex that getting started may be intimidating. Ask yourself some basic questions before getting deeply involved. Are you prepared financially and emotionally to make the long-term investment and commitments involved? Are you clear on your budget, both up-front costs and monthly costs? Have you discussed the things youre looking for in the house — space, rooms, features and the rest — in advance? Have you narrowed down the places that you think will fit your life? You will find it easier to get started after being clear on these key factors; writing them down may even help you stay objective through the many decisions to come.