Buying a Home
Buying a home may seem complicated, but it’s easy to find the help you need.
- A bank or other mortgage lender will help you determine what size mortgage loan you can afford and what special programs are available to help you finance a home purchase.
- A real estate agent can help you find a home you like and can afford.
- A title company can organize the paperwork and make sure your loan “closes” (the transaction is completed) as scheduled.
- A community group in your area may offer home ownership counseling programs to help you understand the details of the home buying process and the responsibilities of homeownership.
In most cases, you will contribute a “down payment” from your own funds and you will finance the rest of the purchase price with a mortgage loan. Depending on your income, assets like savings and investments, debts, employment and credit history, you may be eligible for special programs designed for first-time homebuyers by the government, the lender, a non-profit organization or a community group.
Most mortgages have 15- or 30-year terms. The longer the term, the lower the monthly payments and the higher the interest costs will be over the life of the loan.
Mortgages have either “fixed” or “variable/adjustable” interest rates. A fixed rate means that the interest rate stays the same over the life of the loan. A variable/adjustable rate means that the interest rate can change significantly over time. If you plan to own your home for just a few years, a variable-rate loan may be more affordable because lenders often offer a lower interest rate and lower monthly payments at the beginning of the loan term. If you plan to keep the home for many years, a variable-rate loan may result in much higher monthly payments in the future.
Mortgage lenders offer a tremendous variety of loans. Ask several lenders for information on their loans in writing before you apply for a loan. Compare the following:
- Annual percentage rate (APR), which includes the interest rate and any “points” charged. A point is one percent of the loan amount.
- Fees and estimated closing or settlement costs.
- Loan term (the number of years you will have to repay the loan).
- Monthly payment amount, including principal, interest, taxes, home insurance and private mortgage insurance (if required). If the loan has a variable interest rate, ask for the worst-case scenario, that is how soon the interest rate and monthly payment could rise and to what amount.
- The amount of any prepayment penalty.
- Whether the lender will “lock in” the interest rate offered if market rates rise between the time you apply and when your loan closes.
Lenders will compete for your business. Let them know you are shopping around, and negotiate to get the most favorable terms.
If you have a poor credit history or inadequate income and assets to qualify for a more affordable mortgage, you may qualify for a loan at higher rates and with terms disadvantageous to you. Remember that your home is collateral for your mortgage loan.
If you cannot make your payments, you could lose your home as well as all the money you have already invested in it. Be sure you can afford any mortgage you apply for.