TWO: LAYING THE FOUNDATION

After deciding that buying a home is the best decision for you, what’s next?

Being Prepared

It will be good for you to evaluate how prepared you currently are to buy a home. Perhaps you have been making steps towards this goal for a while or maybe this is all new to you. Either way, the ways you have equipped yourself for this venture will be major determining factors on which loan program you choose. Do you have an amount for a down payment? What is your income to debt ratio? How is your credit status? There are a number of ways you can be prepared for this process.

Your Monthly Payment

Your next concern starts to be which loan program fits your needs and how to structure your monthly mortgage payments. Before moving forward, you’ll want to consider those items that make up your monthly payment and the factors that influence them.

Typically referenced as PITI, your monthly mortgage payment is comprised of Principal, Interest, Taxes and Insurance.

•  The initial amount you borrow to purchase the home and the remaining outstanding balance throughout the life of the loan is the PRINCIPAL.
•  The charge for borrowing money is the INTEREST.
•  Collected in an escrow account, your TAXES are assessed by your local government and typically paid to your lender as a portion of your payment. The lender will then pay them to the government upon their due date.
•  Established in a similar fashion as your taxes, INSURANCE is collected by the lender and put into an escrow account. Your insurance is composed of two prominent types of coverage. Homeowner’s insurance provides you coverage for damages inflicted by hazards such as (but not limited to) wind and fire. Mortgage insurance typically is required for those making a smaller down payment on their loan; it provides protection for your lender in the instance that you are not able to fulfill the mortgage requirements and repay your loan.

Common Concern

One of the issues that most concerns homeowners is their mortgage interest rate. This is for good reason as the interest rate directly affects the monthly payments for the life of the loan. Because of this, homebuyers search for steps they can take to obtain the lowest rate available.

Contributing factors to the interest rate include whether the homebuyer decides to:

•  select a fixed or adjustable rate
•  pay discount points
•  choose a short or long term loan

There are other special considerations that you may want to consider as you evaluate your mortgage options.