Shopping for a Mortgage

Perhaps the most confusing part of buying a home is the mortgage and closing costs. Some closing costs may be paid by the seller if you request it as part of the deal. The mortgage industry has been very creative in helping people get loans with zero or little down payment. Many people bought homes that they really couldn't afford with adjustable rate mortgages and zero down payment. After a predetermined period, such as 5 years, their interest rate went up and they could no longer afford to make the payment. Very little principal was paid on the loan, most of the payments they made went to pay interest. Now they can't sell their home for enough money to pay it off, they have no equity. This is one reason there are so many foreclosures now.

If you buy a foreclosure at well below market rate, plan to live in it while you fix it and plan to sell it in less than 5 years an adjustable rate mortgage may work in your favor. Having the lower payment may mean you have more money left over to fix up the house. An ARM may not be such a good idea if you are buying a new house for top dollar. There is a good chance the home won't appreciate enough for you to sell it at a profit.

You need to shop for a loan and compare rates. On any given day, different mortgage companies will offer you different rates. The Internet and. E-Loan is a good place to start. your shopping. This will allow you to see the types of loans & rates available as well as give you an estimate of closing costs.

FHA loans may allow you to buy a home with as little as 3% down. Many states also have special first time home buyer assistance programs to help people buy their first house.. Check which programs are available in your state.

Closing costs will included things such as recording fees, closing fees, document fees, appraisal, lender fees, points, PMI and an escrow account for your property taxes and insurance. Your lender should give you a good faith estimate of closing costs.

You will get a lower rate if you pay more points up front. Paying points up front will lower your interest rate. A point is 1% of your mortage. If you plan to stay in your home and keep the mortgage for a long time, it may be worth your while to pay points and lower the interest rate.

Property taxes and homeowners insurance rates will likely go up every year, this will increase your monthly payment. You may also have HOA fees to pay yearly. (Homeowners Association) You will probably have some unforseen repair bills. Don't max out your budget when buying a home, make sure you have some money left over after making your mortgage payment. Is the house much larger than where you are living now? If so you can expect your electric bill to go up.

Read the Freddie Mac Guide to Homebuying for more information.