Before you make the decision to purchase a home, you should determine how much you can afford to pay
for one. In order to buy a home, most individuals have to obtain a
mortgage, which is a loan for purchasing real estate. A mortgage
requires you to pay back the amount of the loan and to pay interest.
Interest is the percentage amount of the loan you have to pay in
addition to the loan amount in exchange for the privilege of borrowing
the money. Generally, you should keep your monthly mortgage payments under 1/3 of your monthly gross income.
It is possible to get a rough calculation of what your monthly
payments would be by entering your overall loan amount, interest rate,
and the length of the mortgage (see bankrate.com’s calculator).
Once you have determined that you can afford to purchase a home, you should compare different mortgage options.
Mortgages can vary based on length, interest rate, and repayment
terms. Generally, you can choose either a 15-year mortgage or a 30-year
mortgage. The 15-year options usually offer lower interest rates. In
choosing a mortgage term, bear in mind that the shorter the term, the
quicker you pay off your house, and the more you force yourself to save
each month. But, don’t take on a mortgage that you can’t afford to pay – a mortgage default and foreclosure can seriously impair your credit, and you could end up losing your home.
Mortgages also vary based on whether they are fixed-rate or
adjustable-rate. Fixed-rate mortgages allow you to retain the current
interest rate and pay that for the life of the loan. With
adjustable-rate mortgages, the interest rate changes throughout the life
of the loan in conjunction with the market interest rate. You should
check into how these adjustable rates are calculated and estimate
whether the total cost of your loan will be greater or less than the
total cost of a fixed-rate mortgage.
Lastly, mortgages can vary based on repayment terms. Talk to a
qualified lender to learn more about these.