Getting Your Finances in Order A crucial step in starting your search for a new home is having a clear idea of your financial situation. By getting a handle on your income, expenses and debts, you'll have a much better idea of what you can afford and how much you'll need to borrow. For lenders to verify this information, though, they're going to need to look at your financial records. It is also important to remember that you should include records for each person who will be an owner of the house. So before you even visit the bank, make sure you'll be able to provide copies of these important documents: Paycheck StubsRemember that lenders are most interested in your average income. Not only will they want to see this month's paycheck, but also how much you've been making for the past t... 12/10/2007

How Much Can You Afford? Understanding how much you can afford is one of the most important rules of home buying. Depending on your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of the house, and even what type of financing you choose. Bear in mind, however, that lenders will look at more than just your income to determine the size of the loan. Likewise, you may find that there are some creative financing options that can help boost your purchasing power. Loan prequalification vs. preapprovalOne of the best ways to determine your budget is to have your real estate agent or lender prequalify you for a loan. Prequalification is different from preapproval, because it is only an estimate of what you'll be able to afford. On the ot... 12/03/2007

All About Adjustable-Rate Mortgages Adjustable-rate mortgages (ARMs) differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. ARMs also generally have lower introductory interest rates vs. fixed-rate mortgages. Before deciding on an ARM, key factors to consider include how long you plan to own the property, and how frequently your monthly payment may change. Why choose an adjustable-rate mortgage?The low initial interest rates offered by ARMs make them attractive during periods when interest rates are high, or when homeowners only plan to stay in their home for a relatively short period. Similarly, homebuyers may find it easier to qualify for an ARM than a traditional loan. However, ARMs are not for everyone. If you plan to sta... 12/03/2007

When Should You Pay Points on a Loan? When it comes to comparing interest rates for a mortgage loan, homebuyers often have the option of choosing a loan with a lower interest rate by paying points. Simply put, a point is equal to 1 percent of the loan amount. For example, with a $100,000 loan, one point equals $1,000. Points are usually paid out-of-pocket by the buyer at closing. Paying points may seem attractive, because a lower interest rate means smaller monthly payments. But is paying points always a good idea? The answer generally depends on how long you plan to stay in the house. Let's look at an example: Bob and Betty Smith are shopping for loan rates on a $150,000 home. Their bank has offered them a 30 year loan at 7.5 percent with no points. This works out to a monthly payment ... 12/03/2007

How Mortgage Loans Work Excluding property taxes and insurance, a traditional fixed-rate mortgage payment consist of two parts: (1) interest on the loan and (2) payment towards the principal, or unpaid balance of the loan. Many people are surprised to learn, however, that the amount you pay towards interest and principal varies dramatically over time. This is because mortgage loans work in such a way that the early payments are primarily in interest, and the later payments are primarily towards the principal. In the beginning... you pay interestTo help calculate monthly payments for loans based on different interest rates, lenders long ago developed what are known as "amortization tables." These tables also make it fairly easy to calculate how much money of each payment is interest, and... 12/03/2007

Leveraging Your Money One of the greatest financial aspects of buying a home is the ability to leverage your money. Simply put, leverage allows you to use a small down payment and financing to purchase a larger investment. For example, if you bought a $125,000 home with 10 percent down, you leveraged the $12,500 down payment to purchase an asset worth 10 times that amount! AppreciationThe benefits of leverage really become apparent with appreciation, or the rise in value of a property. Using the above example, say you were to live in the house for 5 years, and during that time property values in your area were to rise an average of 2.5 percent a year. Your home would then be worth over $141,000. By putting only 10 percent down, you get to enjoy the appreciation for the full amount! Payi... 12/03/2007

Saving for the Down Payment Saving funds for a down payment should be part of an overall program to get your finances in order prior to shopping for a home. This includes rounding up financial records, examining your spending habits, and setting a budget you can live with. Remember, too, that the down payment is not the only up-front expense. An allowance for closing costs should also be included in your savings budget. How much is required?The down payment is usually expressed as a percentage of the overall purchase price of the home, and varies depending on the lender, the type of financing and amount of money being lent. In the past, the typical down payment was 20%, but in recent years lenders have been willing to offer conventional financing with as little as 3% down. U.S. Governme... 12/03/2007

15-Year, 30-Year, or a Biweekly Mortgage? In the past, the 30-year, fixed-rate mortgage was the standard choice for most homebuyers. Today, however, lenders offer a wide array of loan types in varying lengths--including 15, 20, 30 and even 40-year mortgages. Deciding what length is best for you should be based on several factors including: your purchasing power, your anticipated future income and how disciplined you want to be about paying off the mortgage. What are the benefits of a shorter loan term?Some homeowners choose fixed-rate loans that are less than 30 years in order to save money by paying less interest over the life of the loan. For example, a $100,000 loan at 8 percent interest comes with a monthly payment of around $734 (excluding taxes and homeowner's insurance). Over 30 ... 12/03/2007

Closing Costs The bundle of fees associated with the buying or selling of a home are called closing costs. Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom. Buyer closing costsWhen a buyer applies for a loan, lenders are required to provide them with a good-faith estimate of their closing costs. The fees vary according to several factors, including the type of loan they applied for and the terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid in advance. Some typical buyer closing costs include: The down payment Loan fees (points, application fee, credit report) Prepaid interest Inspection fees Appraisal Mortgage... 12/03/2007

Refinancing Refinancing your home can be an excellent way to bring down your monthly mortgage payment, raise cash, or consolidate debts with high interest rates. However, you need to do your homework before deciding to refinance. One important factor is the difference between current interest rates and the rate of your original loan. You also need to take into account the amount of time it will take to recoup the costs of refinancing. When should you refinance?Some common reasons homeowners refinance include: Lower monthly mortgage payments Convert an adjustable rate mortgage (ARM) to a fixed-rate mortgage Raise funds for family expenses (i.e. college tuition) Pay off high-interest loans Home improvements The old rule of thumb is that you should refinance your home if interest rates fal... 12/03/2007

Understanding Different Types of Loans Today's homebuyer has more financing options than have ever been available before. From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually anyone. While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. Though this article discusses some of the more common loan types, you should spend time talking with different lenders before deciding on the right loan for your situation. General categories of loansMost loans fall into three major categories: fixed-rate, adjustable-rate, and hybrid loans that combine features of both. Fixed-rate mortg... 12/03/2007

Where are fixer-uppers found? You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area. Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost. Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid run-down houses that need major structural repairs. A house pric... 10/19/2007

Buying Your Home - Fixer-Uppers Are fixers a good idea in bad areas? It depends. Distressed properties or fixer-uppers can be found anywhere, even in wealthier neighborhoods. Such properties are poorly maintained and have a lower market value than other houses in the neighborhood.  Many experts recommend that before you make such an investment, first find the least desirable house in the best neighborhood. Then do the math to see if what it would cost to bring up the value of that property to its full potential market value is within your budget. If you are a novice buyer, it may be wiser to look for properties that only need cosmetic fixes rather than run-down houses that need Are there programs for fixer-uppers? If you need home loan to buy a "fixer-upper" and remodel it, look at the... 10/19/2007

Are condos a good investment? Condominiums have held their value as an investment despite economic downturns and problems with some associations. In fact, condos have appreciated more in the past few years than when they first came on the scene in the late 1970s and early 1980s, experts say. While there are lots of reports about homeowners association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past. Meanwhile, changing demographics are making condominiums more attractive investme... 10/19/2007

Do condos have to be made accessible to the disabled? The 1990 Americans with Disabilities Act does not require strictly residential apartments and single-family homes to be made accessible. But all new construction of public accommodations or commercial projects (such as a government building or a shopping mall) must be accessible. New multi-family construction also falls into this category. In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled.  Two educational brochures, "Housing Rights" and "Discrimination is Against the Law," are available through the Department of Fair Employment ... 10/19/2007

Are condominiums risky to buy? While condos never had the kind of appreciation experienced by single-family homes in the go-go 1980s, most ultimately have not lost value, say some experts. And with high prices in many urban markets and more single home buyers in the market than ever before, the market for condos is strong.  As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer).  The condominium community has worked hard in the last few years to overcome image problems brought on by disputes and ... 10/19/2007

How do I figure out the homeowners association? Learn everything you can about the homeowners association before you buy into a development governed by one. The association's financial, political and legal conditions are very important to your investment and quality of life.  When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues.  Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the associations covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and y... 10/19/2007

Are one-bedroom condominiums a good investment? One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos. Can condos ban smoking? A homeowners association's board of directors can restrict smoking if it applies to indoor common spaces such as hallways or recreation rooms. Outdoor spaces are a different story, say legal experts. Any restriction would probably hinge on local laws (i.e. if a city banned smoking outdoor... 10/19/2007

Buying Your Home - Lease Options What is a lease option? When a renter signs a lease with an option to purchase a property for a specific price within a certain time frame, that is called a lease option. In most lease-option situations, a portion of the rent is applied to a future down payment. Lease options are most popular among buyers who don't have enough funds for a down payment and closing costs. Where do I get information on lease options? Contact your real estate agent (some even specialize in such transactions) or read up on lease options at the public library. If you have a real estate attorney, ask if he or she has any prepared information you can review. Most bookstores have a fairly hefty real estate book section these days. Many current real estate books have at least a s... 10/19/2007

Buying Your Home - Tenants-In-Common and Co-ops Where do I get information on co-ops? For information on co-operative housing, contact the National Association of Housing Cooperatives, 1401 New York Avenue Northwest, Washington, D.C., 20005-2160; (202) 737-0797. Can a co-owner force someone off a shared deed? In some states, a co-owner often can force the sale of a shared property by filing a so-called partition action. In such a situation, if the severance is granted, the property would be sold and the owners would split the proceeds proportionate to their interest in the property. You should check your title for any references to such a severance action. You may need to consult a real estate attorney. 10/19/2007