What should I know before buying a home?

Here are some tips that could save you a lot of time, money and trouble.
Plan ahead. Establish good credit and save as much as you can for the down payment and closing costs.
Get pre-approved online before you start looking. Not only do real estate agents prefer working with pre-qualified buyers; you will have more negotiating power and an edge over homebuyers who are not pre-approved.
Know what you really want in a home. How long will you live there? Is your family growing? What are the schools like? How long is your commute? Consider every angle before diving in.
Set a budget and stick to it.
Make a reasonable offer. To determine a fair value on the home, ask your real estate agent for a comparative market analysis listing all the sales prices of other houses in the neighborhood.
Choose your loan (and your lender) carefully.
Consult with your lender before paying off debts. You may qualify even with your existing debt, especially if it frees up more cash for a down payment.
Keep your day job. If there is a career move in your future, make the move after your loan is approved. Lenders tend to favor a stable employment history.
Do not shift money around. A lender needs to verify all sources of funds. By leaving everything where it is, the process is a lot easier on everyone involved.
Do not add to your debt. If you increase your debt by financing a new car, boat, furniture or other large purchase, it could prevent you from qualifying.
Timing is everything. If you already own a home, you may need to sell your current home to qualify for a new one. If you are renting, simply time the move to the end of the lease.

1. How much house can I afford to buy? Answer
2. How do I know which type of mortgage is best for me? Answer
3. What is the difference between a fixed-rate loan and an adjustable-rate loan? Answer
4. How is an index and margin used in an ARM? Answer
5. What types of loans are there? Answer
6. What does my mortgage payment include? Answer
7. How much money down will I need to purchase a home? Answer
8. What kind of credit score do I need to purchase a home? Answer

Q.   How much house can I afford to buy?
A.   You usually can purchase a home with a value of two to three times your annual combined 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 such as the SHIP program.

Q.   How do I know which type of mortgage is best for me?
A.   Determining the loan type takes into account many factors hence there is not simple formula for determining the best loan type for any specific individual. This choice depends on many factors such as income, credit scores, job stability, assets, the amount of time you plan to stay in your home, etc.

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 a mortgage professional.

Q.   How is an index and margin used in an ARM?
A.   An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin. Three commonly used indexes are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR).

Q.   What types of loans are there?
A.   Conventional and Government Loans
Conventional loans which may be conforming or non-conforming
FHA loans The Federal Housing Administration, which is part of the U.S. Dept. of Housing and Urban Development (HUD). FHA
VA loans which are guaranteed by U.S. Dept. of Veterans Affairs. VA

Q.   What does my mortgage payment include?
A.   The mortgage payment for most homeowners include the Principal (this is payment towards the amount borrowed), Interest (this is payment to the lender for giving the loan), and Taxes & Insurance (Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company).

Q.   How much money down will I need to purchase a home?
A.  The amount of money depends on many things such as loan type, loan program, credit scores, etc. You will generally need to put Earnest Money (The deposit that you put down with a contract offer on a home). Down Payment (Usually a percentage of the cost of the home. This is due at closing. And Closing Costs (These are costs associated with the closing such as title insurance, doc stamps, mortgage stamps, etc.

Q.   What kind of credit score do I need to purchase a home?
A.   This will depend on many factors such as the loan program, how much money you can put down, job stability, etc. Generally the higher the credit score the lower the interest rates, the less money down needed, and the easier it is to qualify for the loan.