New to Home Mortgages? These 800 Words Will Save You Days! | Mortgage

New to Home Mortgages? These 800 Words Will Save You Days!

by RobertLaughlin

Home ownership is a goal for almost every American today. It's one of the most important financial decisions you can make, and with interest rates and home prices at rock bottom from the recession, it's an excellent buyers' market. A home is a great investment because the appreciation of the property value historically out paces inflation, and, as opposed to renting, part of your monthly payments contribute to the equity in your home. When you're ready to buy a home, the first thing you should do is figure out the type of mortgage loan that fits your budget and lifestyle.

By first finding out how much house you can afford, you're doing yourself and your Realtor a huge favor since there won't be the question of 'can I afford it.' If it's not in your budget, don't bother looking, and if it is in your budget, you can be confident that you can find financing for it. Since buying a home is the largest single investment most Americans make, it's definitely not to be taken lightly. If you spend a short while to learn about mortgages before you get started, it will be worth it.

Home loans are available from a wide variety of sources. These sources include banks, savings and loan associations, credit unions and mortgage brokers. Shop around at all of these sources to find the home loans with the lowest interest rate and lowest costs.

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.

The length of the term on your mortgage can greatly affect the total amount that you pay over the course of the loan term. A shorter, 15-year mortgage has much less compound interest tacked on, so the payments won't actually double that of a 30-year mortgage. 15-year mortgages can be surprisingly affordable, but if your income can vary from month to month, and it might be a stretch, go for the longer term. With the 30-year mortgage, you can always make additional principal payments during good months to help pay off the loan quicker - effectively racking up less in interest.

With the current state of the housing and lending markets - both at rock bottom, there hasn't been a better time to buy a home in the last decade. Take advantage of it if you can by converting your rent check into a mortgage payment. Years from now, you'll be very happy with your decision.

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

Robert Laughlin has been in the Sacramento home mortgage and real estate fields for over 20 years. You can read more of his articles on his home mortgage website, including a free, essential article for new home buyers: the 8 Essential Home Mortgage Tips.