» Tips

Q: How do I know which type of mortgage is best for me?

A: There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. If you're not ready to stay in one place for a couple of years, then owning your own home is probably not for you, at least not until you're ready to stay put for awhile. With the costs of buying and selling a home, you very well may end up losing money if you try and sell your home less than a few years after purchasing it.

Q: How do I know how much I can afford to purchase a home?

A: The first step in purchasing a home is often research. Some things to consider when shopping for a home are school systems, market stability, municipal services, and closeness to amenities such as shopping centers, hospitals, etc. Once you've narrowed down the search, you can then start looking at specific houses. You can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first-time buyers to purchase a home with a higher value. Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.


Q: What is the difference between a fixed-rate loan and an adjustable-rate loan?

A: With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to your broker. 
 

Q: What does my mortgage payment include?

A: For most homeowners, the monthly mortgage payments include three separate parts: 

• Principal: Repayment on the amount borrowed.
  
• Interest: Payment to the lender for the amount borrowed.
  
• Taxes and Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes.