HOME BUYING MORTGAGE BASICS

Another way they look at it is that your total housing costs, including mortgage payments, property taxes, and insurance should not be greater than 28% of your gross monthly income.  If you include your other debt payments, then it should not exceed 36%.

DOWN PAYMENT

When borrowing money for a house, you will normally need to pay at least part of the purchase price of the home.   This is known as the down payment. The normal down payment is 20% of the purchase price of the house.  Down payments are required to protect the lender in case of default (if you fail to pay back your loan).

If you can't afford the full 20%, then you may be able to still get a mortgage, but will be required to pay for private mortgage insurance, or PMI.  Another option is that many lenders offer double loans, one for the normal mortgage, and a higher rate loan to cover the down payment.

BUDGET CAREFULLY

In general, you don't want to buy more home than you can afford.  Along with the down payment, you will likely have closing costs and fees that may run 2% to 5% of the amount of the loan.  Also, owning a house brings many additional costs, such as insurance, home repair, etc that you may not be currently paying, and will need to budget for.

FIXED AND ADJUSTABLE RATE LOANS

One big difference between mortgage loans, is fixed rate loans, and adjustable rate loans (also known as ARMs).   Adjustable rate loans are usually less expensive in the beginning, since the interest rate you pay will be less than fixed rate loans.  However, if interest rates rise suddenly, you may be required to make much higher monthly mortgage payments.

Nevertheless, if you plan on staying in your house for only a short period of time, then an adjustable rate loan probably makes more sense.  For longer periods of time, consider a fixed rate loan.  Also, be aware that some lenders often make ARMs look better by offering a 'teaser' rate.  However, these low rates are only for a short time, so beware, and fully understand the terms of your loan.

OTHER FINANCING OPTIONS

Today's mortgage market is very different from the past.  Today, there are many more loan choices, and loans are much more available then before.  Check out different lenders to learn about their different loan programs to see what works best for you.

BUYING NOW - HOUSING BUBBLE?

A hot topic today is the controversy if we are in a housing bubble, and the question of should we be buying a home at all.  There are valid arguments on both side, and since no one can predict the future, no one knows for sure.  Though, we would say to consider how much housing in your particular area has appreciated recently, and if price appreciation is much greater than average, then consider it a possible risk that housing prices may decline.  Here is a good article on a possible housing bubble.

However, on the flip side there is also a risk of not buying a house, and having housing prices further increase.  If population continues to increase, and the economy continues to grow, then housing prices will then also likely increase in the future.

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