A # 1 Realestate page from allpropeople.com

How much house can you afford?

1) Principal: The repayment of the original amount borrowed on a monthly basis.
2) Interest: The cost of borrowing the principal amount, repaid on a monthly basis.
3) Taxes: Real Estate taxes paid to a local government agency.
4) Insurance: Homeowners insurance on the home. Also any mortgage insurance, which is paid to protect the Mortgage company.
The total of these items is known as the PITI (Principal/Interest/Taxes/Insurance) payment.

Types of Mortgages

Fixed: A fixed term (for example, 15 or 30 years) as well as a fixed interest rate. The interest rate and term are fixed at the start of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of the mortgage.

Adjustable: Often referred to as an ARM (Adjustable Rate Mortgage). The interest rate on your mortgage will be adjusted up or down according to current interest rate levels. The monthly amount for your principal and interest payment will go up or down with these rate changes.
See more discussion on this subject on the Choosing a Mortgage page.

How much down payment?

One of the first questions that home buyers ask is "how much down payment are we going to need?" Unfortunately, there is no standard answer. Down payments will vary from 0% (with a VA--Veteran's Administration loan) to upwards of 25% (with certain "non-conforming" loans). As an average, most home buyers make down payments in the 5%-15% range, although your own personal situation may dictate more or less down payment. When you are factoring money for a down payment, don't forget about closing costs, which will total in the 2-5% range, payable in cash at the time of closing.

What is Pre-qualification? Does it mean that the loan is approved?

Pre-qualification is the initial step in securing a mortgage. A lender will analyze your current income, debt and basic credit history situation in order to qualify you for a maximum loan amount. This gives you a clear picture of your financial parameters and a maximum housing price (the mortgage amount plus your down payment). With pre-approval, the lender verifies your income,debt, and financial picture, approving the loan subject to a favorable appraisal of the property you select. See the discussion on mortgage pre-qualification and pre-approval for more information.

Before you embark on your search for the perfect house, it is important that you make a realistic "shopping list" in an attempt to narrow your choices of properties. Hunting for a home can be a time consuming process, especially if you have not determined in advance the parameters of your search. Many home buyers make the mistake of misinterpreting a WANT as a NEED. As a result, they often dismiss homes that perfectly fit their needs in search for one that has their wants. This is not to say that you cannot have what you desire in your home--just that you must be able to differentiate between what you truly need and what you would like to have. Your budget must be the determining factor here, not a "wish list." Note, also, that in the examples below, many WANTS can be changed in a particular home (if the house doesn't have that feature now, you can change it later).

Example of needs and wants

Enough square footage for comfortable living		Carpeting color, paint color, exterior color, roof color, etc.
Enough bedrooms to accommodate your family		Pool or Jacuzzi (unless for medical reasons)
Adequate number of bathrooms		Wood floors
Eat-in kitchen		Bay windows
Garage or basement for storage needs		Built-in entertainment center
Lot size to accommodate children's play area		Brass lighting fixtures
Adaptation for Handicapped		Skylights
Proximity to a specific school		A pretty view

Take a few minutes to develop your own list of NEEDS and WANTS. That you can use as you begin to evaluate homes. The goal is to put the emphasis on finding a house that includes all of your needs and as many of your wants as is practical--yet remains in your budget. Once you have a clearer view of what your house will need to have, the next step, actually looking for a home, will be a great deal easier!

Determine the area you want to live in

There are probably few things in life that are as exciting--or as nerve- racking--as the search for a house. All the good emotions and the bad emotions seem to converge when the house hunting begins. Don't worry, this is a normal reaction, and is found in seasoned home buyers as well as those who are looking for their first home. One of the first decisions you need to make is whether you want to do your house hunting on your own, or by using an Agent. If you decide to go it on your own, you will be able to see (and buy) those houses that are For Sale by Owner (known as FSBO's). Depending on your area and the overall market, this will be around 20% or so of the total homes available (the other 80% are the "listed" properties--being sold through an Agent. Those homes you can't buy--or even see--on your own)

Familiarize yourself with mortgage process

Fixed Rate Mortgage

The interest rate stays the same throughout the term of the loan - usually 15 or 30 years - so the principal interest portion of your payment remains the same. Payments are stable but initial rates tend to be higher than adjustable rate loans and often cannot be assumed by a subsequent buyer.

Balloon Mortgage

This is a loan which must be paid off after a certain period. The advantage they offer is an interest rate that is lower than a mortgage that is made for 30 years.

Adjustable-Rate Mortgage (ARM)

The interest rate is linked to a financial index, such as a Treasury security or a cost of funds - so your monthly payments can vary up or down over the life of the loan - usually 25 to 30 years. Interest rates can change monthly, annually, or every 3 or 5 years. Some ARMs have a cap on the interest rate increase, to protect the borrower. Other terms relating to adjustable-rate mortgages:

Adjustment period: The length of time between interest rate changes. Example: one year ARM-interest changes annually.
Cap: The limit on how much an interest rate or monthly payment can change at each adjustment or over the life of the loan.
Conversion clause: A provision in some loans that enables you to change an ARM to a fixed rate loan, usually after the first adjustment period. This may require additional fees.
Index: A measure of interest rate changes used to determine changes in the loan's interest rate over the term of the loan.
Margin: The number of percentage points a lender adds to the index rate to calculate the ARM's interest rate at each adjustment.

VA Loan

The VA does not lend money, it guarantees a portion of the loan so that lenders who originate the loan feel comfortable with their risk. Qualified veterans can obtain loans up to $203,000 with no down payment. VA-guaranteed loans can be combined with second mortgages and are assumable upon qualifying by any future buyer.

FHA Loan

FHA does not lend money or make a loan; rather, it insures loans. The down payment can be as low as 2.25%. Discount points may be paid by either buyer or seller. FHA charges a 2.25% up front Mortgage Insurance Premium (or as little as 2% for a first time home buyer) that can be financed in the mortgage amount or paid in cash (no premium is required for condominiums). The borrower must also pay an annual Mortgage Insurance Premium or .5% which is collected monthly.

Seller Assisted Second Mortgage

The seller of the house lends the buyer enough to make up the difference between the purchase price and the down payment plus first-mortgage balance (a commercial lender may also make this kind of loan). The terms including the interest rate, are based on buyer/seller agreement. It is often a short-term (5 to 15 year) loan; sometimes "interest only" payments until the term date when the balance is due in full. A buyer can then refinance the home.

Assumable Mortgage

Buyer "takes over" or assumes the mortgage obligation of the seller (with concurrence of the lender). The interest rate doesn't change and is sometimes lower than current rates. Often the loan fees are less as well.

Do comparative shopping and select an agent.

Select the desired home

Negotiate the best deal on the selected property

Arrange for a home inspection

A home inspection is a professional, unbiased visual examination of the condition of a home at the time of the inspection. Home buyer's now entering the market place view inspections as a way to gain valuable information about the biggest purchase of their lifetime. It helps them to determine whether there are any major defects in the visible portions of the home before the sale is completed.

What a professional, competent home inspector should inspect are the major components of the home: heating, cooling, plumbing, and electrical systems. Also built in appliances, exterior walls, gutters and downspouts, roofs, foundations, crawl spaces, and basements.

Home inspections are not intended to point out every small problem or any non-visible defects in a home. Most minor or cosmetic flaws, for example, should be apparent without the aid of a professional and are not normally commented on.

Home inspections also highlight the positive aspects of a home. In fact, many of the home inspector's observations or recommendations help to dispel home buyer anxieties, and provide useful repair and maintenance suggestions.

The home inspections should not be confused with an appraisal, a municipal inspection, or a guarantee of any kind.

Secure Homeowner's insurance and warranty

Secure final financing.

Closing and settlement.

Renting Versus Buying

If you are considering buying a house, one of the first decisions you need to make is whether buying a house instead of renting one is the right direction for you. Since owning a home is the "American Dream", many people simply assume that it's always to their advantage to buy a home, and for most, it is. Take a moment to review the following table to see how your situation fits in. Items in the green boxes are advantages and in the red boxes are disadvantages.

Renting		Buying
More fixed costs for the term of the lease		Variable costs
Not gaining equity, but not losing it either		Equity may go up, down, or stay stagnant
When the lease is up, you can just move		If you want to move, home generally must be sold
There is generally less work in maintaining a home or apartment		Work needs to be done by you--or paid for by you
Smaller amount of "up-front" cash		Generally a larger initial investment--the down- payment
No matter what happens with the value of the home, you will never gain equity		Over time, the mortgage balance decreases and equity builds, even if the value of the home does not increase
Limited--or no--ability to personalize your living quarters		The ability to remodel and redecorate the home to match your needs and desires
No tax advantage to renting. Your landlord gets any and all tax breaks that are available		There can be tax advantages attached to home ownership. Consult competant legal and/or accounting advice for details for your situation