Your First Steps toward Homeownership

Getting Started
Many people don’t consider buying a home because they’re afraid they can’t afford it. But for most people homeownership is within reach — especially with special
programs for first-time home buyers. In fact, for many,homeownership is as affordable as renting.
Know Your Finances
There is no substitute for being prepared, and that means having a real budget. Be honest. Be realistic. Know how much is coming in every month — and how much is going
out. It will not only help you but also help professionals like your lender do the best they can for you.Choose a Lender Before You Shop for a Home
Mortgages are complicated financial transactions,but lenders are experienced in explaining the ins and outs of home loans to buyers. Here’s what a lender
will do for you, in addition to lending you money:
• Help you determine just how much house you can afford.
• Identify the type of mortgage that meets your specific financial needs.
If you choose your lender early in the process, you’ll already have a working relationship when it comes time to apply for your mortgage. There’s nothing worse than falling in love with a house you can’t afford — unless it’s bypassing a house you could have afforded.That’s why it is important for you to have a good idea
how much house you can afford. Most people can’t do that alone. If you work with a lender before you decide on a home, you’ll know whether you qualify for a mortgage
large enough to finance the home you want — and if you don’t qualify, you’ll know what steps to take to get you there in the near future.
Which Mortgage Is Right for You?
Many factors can and should influence your selection of a mortgage. As you read about the mortgages that are available and discuss them with your lender, keep the
following five factors in mind:
• Your current financial situation and resources
• How you expect your finances to change in the future
• How long you intend to keep the home you’re buying
• How comfortable you might be with the idea of your mortgage payment changing from time to time
• How rapidly you want to build equity mortgage if interest rates rise, it also means you will pay the quoted rate even if interest rates fall.Lock periods usually run from 10 to 60 days. Longer periods are sometimes available for an additional fee. You may want your lock period to be long enough to get you through closing and settlement. Some lenders give you the option of letting the interest rate for your mortgage float, so the rate can change between the time you apply and the time you close, but the rate is usually set after some specified period before the actual closing.
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Some people would rather pay their taxes and insurance themselves, putting money aside every month to do it and gaining interest for themselves on those funds. In some cases the interest rate on your loan may be slightly higher
if you do not have an escrow account. Currently, most states permit lenders to collect two months of estimated annual real estate taxes and
insurance payments at the closing. Afterward, your monthly payment will include 1/12 of the annual total for taxes, insurance and other anticipated charges (your
lender may collect an additional amount to ensure that a two-month cushion is maintained in the account). Your tax and insurance bills are paid by the lender or servicing company that handles your payments. Together, all the
parts of a mortgage payment are commonly called PITI (Principal-Interest-Taxes-Insurance).
Comparing Mortgages
The total cost of a mortgage involves more than just the interest payments you make. There are also origination fees, discount points and other miscellaneous costs. What’s more, there can be other terms and conditions that may affect the ultimate cost of your mortgage. When you compare different mortgages, be sure that you take into account all the factors that can influence your final costs.
Discount Points
A point is equal to 1 percent of the total amount of a mortgage; one point on a $100,000 mortgage is $1,000 (1 percent of $100,000). Generally, you will pay all
points at closing. Most lenders offer mortgages with combinations of points and interest rates. Generally, the lower the interest rate, the more points you will pay at settlement. (Interest rates affect your monthly mortgage payment, while the points affect the amount of cash you must have at the settlement.) For example, if a loan with the current market interest rate has two points, a loan with an interest rate that’s one-half percent higher than the market rate may have no points. Your choice among the various interest rate/points options will depend on
how much cash you have available for the closing and settlement.
Final Interest Rate
As you discuss different mortgages with your lender, there are other conditions and terms you should keep in mind. One of the most important is how and when the actual
interest rate you will pay is determined. Most lenders will quote a rate and fee at the time you apply for a loan, and then guarantee — or lock — the quote for a specified time. While this protects you from paying more for your Your First Steps toward Homeownership
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