Buying a new home is an incredibly exciting moment in a person’s life, but the financing terms that are frequently brought up throughout the home-buying process can sometimes feel like a different language altogether. At Riverside Homebuilders, we’re here to help you navigate these terms and make your buying experience as smooth as possible, so read on as we break down some of the most common financing terms you might encounter during this time.  

Pre-approval

Getting pre-approved means a lender has reviewed your financial information and determined how much money you can borrow. A pre-approval letter shows sellers and home builders that you’re a serious buyer and can give you an edge in a competitive market. 

Interest rates

The interest rate is the cost of borrowing money, expressed as a percentage, and a lower interest rate means you’ll pay less over the life of a loan. Interest rates can be fixed or adjustable:

• Fixed Interest Rates: A fixed interest rate stays the same for the entire term of your loan. This means your monthly mortgage payment will remain consistent, which can make budgeting easier. Fixed rates are a great option if you plan to stay in your home for a long time and prefer predictable payments. 
• Adjustable Rate Mortgages (ARM): An ARM has an interest rate that can change over time. Typically, an ARM starts with a lower fixed rate for a set period (such as 5, 7 or 10 years) and then adjusts annually based on market conditions. While ARMs can offer lower initial rates, your payments could increase if interest rates rise after your set period is over.

Rate Buydown

A rate buydown is an option where you will pay extra upfront in order to lower your mortgage interest rate—meaning that you can secure a lower monthly payment. Essentially, it’s paying for a discount on your loan rate, and this can be especially helpful if you plan to stay in your new home for a long time. 

3-2-1 Buydown

A 3-2-1 buydown is a type of rate buydown that lowers your interest rate for your first three years of your mortgage. In the first year, your interest rate is reduced by 3%, by 2% in the second year, and by 1% in the third year. After the third year, you’ll pay the full interest rate for the remainder of the long term. This can make your initial payments more affordable, and give you more time to get your finances in order and adjust to the new budget. 

Bridge Loan

This is a very convenient option for those with a home to sell in order to bridge the gap between buying a home and selling your previous one. This will enable qualified home buyers to defer the payment on the new home for 6 months after closing while working toward selling the previous one. Essentially, you do not have to cash in the equity of your prior home before purchasing your new home, you can leverage it while making buying, closing and moving to your new home higher priorities. 

Down payment

The down payment is the amount of money you pay upfront toward the purchase of your home. It’s usually expressed as a percentage of the home’s purchase price, and a larger down payment can lower your monthly mortgage payments and might allow you to qualify for a better interest rate. 

Closing costs

Closing costs are the fees and expenses in addition to the down payment that you need to pay when finalizing your home purchase, and these can include appraisal fees, title insurance and attorney fees. Typically, closing costs generally range from 2% to 5% of the home’s purchase price, so it’s important to budget for these costs to ensure that you’re not caught off guard. 

Discover your new home in DFW

At Riverside Homebuilders, we’re committed to making your path to homeownership as clear and straightforward as possible, and we hope this guide helps you understand some of the key financing terms you’ll encounter on your buying journey. If you have any other questions about the buying process or want to know more about our available new homes in the DFW area, our team is always here to help. Give us a call at (817) 601-6230 or fill out our online form today.