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Overview

Owning a home is part of the American dream, though there are many American’s who cannot afford the house they dream of. Those who are able to purchase a home generally have to take out a mortgage on the property. The first mortgage taken out on a property, whether commercial or residential, is called a principal mortgage.

First time home buyers can increase the amount they are able to borrow on a principal mortgage. One way to increase this amount is to reduce the amount of long-term debt. Both income and debt are taken into consideration when determining the amount of loan a borrower can afford. It is often easier to decrease your debt than increase your income, so this is a good option to afford a larger loan.

You can also consider getting a co-signer to help you afford a larger loan. The co-signers income will be used in calculating the amount the borrower can afford, but the co-signer is responsible if the borrower doesn’t pay. If you have money to pay upfront, you may also be able to afford a larger house, while your principal mortgage amount remains the same, by paying a larger down payment.

If none of these are an option, or if you don’t have the money for a large down payment, you may consider a second mortgage to lower your down payment or avoid mortgage insurance. Second mortgages are a mortgage in excess of a principal mortgage. The other mortgage type separate from a principal mortgage is a refinance, where the borrower gets another loan to pay off the principal mortgage, usually at better terms or with extra cash back.

Generally, principal mortgages can come in a large number of types, featuring many different terms and repayment options. They are more complicated than a refinance, and have a longer escrow period. Principal mortgages are the gateway between consumers and the dream of owning a home, making the principal mortgage agreement a very important transaction.


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