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Household finance is an important part of buying a house. Do not be misled by low down payments. Although two hundred dollars moves you in, just how deep are you in? Some people get in a lot deeper than they expect to. Read all the fine print in the contract before signing. How large are the monthly payments? How many years do you have to keep up the payments? Are the payments arranged to include the taxes and the fire insurance, as well as the principal and interest? What is the interest rate? Can the entire amount be paid up at any time? When you sign up to pay $114.00 per month for 25 years, remember that 25 years is a long time to make payments. Where do people get building money, anyway? Most of them borrow it. Ordinarily you can't borrow very much, unless you have some money of your own to start with. When dealing with household finance, if you have a few hundred dollars or a lot paid for, you can usually borrow what money you need to solve your housing problem. Interest is in the neighborhood of six or seven per cent, and the trend is toward higher rates. Often since it is not possible to borrow enough money on a first mortgage, or trust deed, to do all you want to do, a second mortgage is necessary. This second mortgage usually runs from three to five years, whereas the first mortgage runs from ten to twenty-five years or more. Interest rates are usually higher on the second mortgage, and because it also has to be paid off in much less time, the monthly payments are much larger compared to the amount of the loan than is the case with the first mortgage. Most of these loans are amortized; that is, they are arranged so that the monthly payment covers the interest and a small part of the principal. Then as the principal is gradually reduced, the same monthly payment pays less interest and a larger part of the principal, so that near the end of the twenty-five-year period, practically all of the payment goes to finish up the principal. At the end of the time the house is fully paid for by the regular monthly payments. Sometimes the payments are also made to cover a certain amount for taxes and fire insurance. Getting the Loan When you have completed the plans and the specifications, take two copies of each to the loan company, explain your financial set-up to them, and ask for a loan to build the house. They may require that you get a bid from a reputable contractor to give them an idea of the actual cost of the proposed construction. If you apply for an FHA loan, you should have previously procured a little booklet setting forth the things they require in a house before it is eligible for such a loan. Many people, underestimating the cost of the building, do not arrange for enough money to complete the job. Nothing is much more perplexing and discouraging than to get the house as far along as the completion of the plastering and not have money enough to get it near enough to completion so that one can move into it. While you are still paying rent at the old address, the payments are starting on the new house, and you can't use it. So be sure to arrange to borrow enough to complete the job. If you do not need all you have arranged for, you are not required to take it, but maybe you could use a little extra for carpeting or furniture or equipment. When you go to apply for your household finance, be honest with your loan company and give them a true picture of your financial condition, so they can give you sound advice regarding financing your projected building operations. Now you have the loan it is time to start building your house!
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