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Mortgage loans - Information for first time buyers

The biggest challenge for most first-time home buyers is saving up enough money for a down payment especially in markets like San Francisco and New York City, where home prices have soared over the last few years. But thanks to a growing assortment of financing options, it's increasingly possible to find mortgages for as much as 97% of a home's value. In other words, you could put down as little as $5,514 for a home that costs $183,800, the national median in 2004, according to the National Association of Realtors.

Usually, for those who want to buy a home for themselves, the best way they can afford the home of their dreams is to take out a loan. This is usually known as a mortgage loan. For a first time home buyer, loans such as mortgage loans can be very confusing.

But the more money you can muster for a down payment, the more options you will have. For example, Fannie Mae's new "start-up mortgage" allows borrowers who can put down 5% to qualify for a loan on a smaller salary than with a 3% down payment. You will need to find a Fannie Mae-approved lender to take advantage of this program.

Private lenders are also coming up with their own programs to tap into the first-time home buyers' market. Washington Mutual, for example, offers a program for buyers with a 10% down payment: Instead of charging for mortgage insurance, the savings-and-loan builds the cost into the interest rate, making it tax-deductible (which mortgage-insurance premiums aren't).

Worried you don't have perfect credit? Thanks to Fannie Mae's "expanded approval" program, consumers with slightly blemished credit can also qualify for mortgages at competitive rates that are as much as two percentage points lower than alternative financing. "These are people who might not qualify for fair-market value rates from traditional lenders," says Liz Bay, director of single family product development at Fannie Mae.

A mortgage will cover several expenses such as the principal payment, the interest, the home insurance and the city or county taxes that are due for the home. Usually, a mortgage loan can last for 30 years. There are also mortgage loans that only last for 15 years. It is important to note that the shorter the lifetime of a loan is, the higher will be the payments required.

With mortgage loans, it is common to be paying more in terms of interest than principal. Usually, you will be paying around two to three times more in terms of interest than you will be with your principal amount. The first few years of loan payment you will be making will usually be for the interest rate of the loan while the last few payments will be for the principal amount.

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