Home Mortgages 101: A Must-Read for First-Time Home Buyers!
Articles - Mortgage
One of the most important parts of manifest destiny and the American dream is home ownership. Owning your own home can be a very smart investment decision since prices tend to increase faster than the inflation rate, and now, with the recession dropping home prices and interest rates to their lowest in the last decade, there isn't a better time to buy! Because of the current market timing and the fact that it's a widely known as a smart investment, now is the time to start considering the idea. Before you rush out, call a realtor and start looking for a house, you should start by seeking out the perfect mortgage for your budget.
by RobertLaughlin


One of the most important parts of manifest destiny and the American dream is home ownership. Owning your own home can be a very smart investment decision since prices tend to increase faster than the inflation rate, and now, with the recession dropping home prices and interest rates to their lowest in the last decade, there isn't a better time to buy! Because of the current market timing and the fact that it's a widely known as a smart investment, now is the time to start considering the idea. Before you rush out, call a realtor and start looking for a house, you should start by seeking out the perfect mortgage for your budget.

All potential homeowners should take some time to research home loans before calling their local Realtor. There are a dazzling array of choices available when it comes to home loans, and finding the right mortgage for your needs can be difficult. Approach your upcoming home purchase with the same seriousness you apply to other major purchases. Your home will most likely be the biggest single investment you ever make. Take the time at the beginning to educate yourself about home loans. It will be time well spent.

To begin your home mortgage search, talk to credit unions, banks, and brokers in your area. You're looking for someone to hold your hand through the process, but you also want a decent rate with low fees, so make sure to shop around.

You will also have to decide between fixed rate home loans and variable rate home loans. Variable rate home loans are often advertised with extremely low "teaser rates." These rates are used by lenders to get your attention and lure you in.

When you look at an ARM, you should focus on the amount of time before the rate adjusts, and what the new 'adjusted' interest rate cap is. The rate adjustment usually takes place anytime between one month (for promotional APRs) and ten years. The rate cap is the maximum interest rate you might have after an adjustment (if rates skyrocket). You will find that most ARMs will have a 'prime-plus' number, where the new interest rate becomes the federal prime rate, plus a certain percent (based on your credit score, loan amount, and many other factors). Calculate your mortgage payment using the cap rate, and make sure you can afford that monthly payment if worst comes to worst.

Variable rate home loans can be a good choice if you believe interest rates are likely to fall. In an environment where interest rates are steady or rising, they may not be so good a choice. You may also want to consider a variable rate mortgage if you do not plan to stay in your home more than five years. For instance, if your job transfers you every couple of years, you could probably get away with a variable rate mortgage and take advantage of the lower interest rate. When you move and sell your home, you will probably realize a gain due to rising home prices.

Fixed rate mortgages are less complicated than ARMs because you know exactly what your payment is for the life of the mortgage. The fixed rate, as it implies, locks in your interest rate for the entire duration of the loan, which is great for current economic times with low interest. This type of mortgage protects you if interest rates go up, and if interest rates fall, you'll have the option to refinance at the lower rate.

Your mortgage term, or length, is another deciding factor of how much interest you'll end up paying. With a longer term, you'll pay more interest since your loan is amortized over more years - creating more compound interest. If you need the flexibility to make smaller payments by taking on a longer mortgage term, you can always pay more toward your principal at any time to help reduce the length of the loan. Just by paying a few extra principal payments/year can save you tens of thousands of dollars in interest!

Whatever type of home loan you decide on, the most important thing is to take that step which transforms you from a mere renter to a home owner and builder of equity. There are a great many home loans out there, but once you find the right one, you will find the rewards of home ownership well worth the time and effort put forth.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

About the Author: Robert Laughlin has been working with the Sacramento home mortgage and real estate fields for over 20 years. For Robert's other resources about home mortgages, check out his home mortgage website,where you can download the free guide: the 8 Essential Home Mortgage Tips.