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 Money Matters :  Buying a Home

Buying Your Home: An Important Financial Decision

Buying Your Home: An Important Financial Decision
by Rosemary Carlson

So, you’re thinking about buying your first home? From every side, the news media bombards you with claims of “Lowest home mortgage interest rate is here!” "Cash in on our adjustment rate mortgage!” And other claims. How do you determine what it the right type of home mortgage for you and where to obtain it?

For many of us, buying a home is the single largest expenditure we make in our lifetime. Your monthly mortgage payment will surely be your largest monthly expenditure. It’s very important, for these reasons, to choose a home mortgage and lender wisely. Buying that first home and obtaining your first mortgage is almost a “rite of passage” in our society. Choosing a mortgage incorrectly can have serious financial repercussions. Shop around! Before you choose any mortgage, make sure that you know all your options and the terms of each in order to avoid pitfalls and repercussions that can haunt you for years to come. If you choose a mortgage with a higher interest rate than you could actually obtain or with a longer term than you need, you may end up paying many thousands of dollars too much in interest. Of course, you may fix your error by refinancing your house - which simply means replacing your current mortgage with a new, more affordable mortgage - but even refinancing has financial pitfalls as you will, once again, have to pay closing costs and other fees.

Deregulation in the financial marketplace has led to a wide range of mortgage choice for consumers. You can shop around for your mortgage but shopping around isn’t necessarily easy! Mortgages come in nearly every possible combination of time to maturity, terms, interest rates, and fees. The loan you obtain should depend on several factors, including how long you intend to remain in your new home and the monthly payment you can afford. In today’s world, few of us, unlike our parents or grandparents, are likely to stay in one home for a lifetime. We are now a more transient society and due to job possibilities and other factors, we move more often. This is another issue you must consider when shopping for a mortgage.

The long-time favorite type of mortgage for American homebuyers is the 30-year, fixed rate mortgage. This mortgage carries the same interest rate over its 30-year lifetime. When interest rates are low, as they are now, this type of mortgage gets a lot of attention from homebuyers as they have the option of locking in a low, affordable interest rate. However, generally, only the most creditworthy first-time buyers can qualify for this type of mortgage. The 30-year, fixed rate mortgage does give homebuyers the peace of mind of knowing that their interest rate will not change over the life of their loan and that stabilizes their monthly payments.

Lenders obtain credit reports on each potential homebuyer. Even one missed payment on a credit card or student loan can send you right into a higher risk class for a home mortgage and raise your interest rate. Your income also has an impact, as does the amount of down payment you can make.


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