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Step 1 - Planning

Step 2 - Financing

Step 3 - Selecting

Step 4 - Buying

Step 5 - Owning


Make a Decision

The fixed rate/variable rate decision is one of the first decisions you'll make in shopping for a loan. If you believe that interest rates are going to fall in the next few years, or you plan to live in your home only for a few years, then an ARM might be for you. If you're not willing to gamble on interest rates or think you might stay put, pick a fixed-rate loan. Just don�t forget the bottom line: the monthly payment. If you choose an ARM figure out just how high it could go.

Seller Financing

In some cases, particularly if you need help getting financing or qualifying for a large enough loan, the seller might be willing to assist you. Although it�s not usually advertised, this unique type of financing can be a great deal for both buyer and seller. It�s definitely worth exploring with your Realtor acting as facilitator.

Homebuyers, Start Your Engines!

Now that you've decided on the type of loan you want, you can start shopping around.

Survey the Sources

It's a Jungle Out There

The home loan industry is booming. There are more places to borrow than ever before, including mortgage companies, banks, savings and loans, and credit unions. Your first priority is to shop around, a lot! Interest rates and points vary substantially between lenders. It's going to take time�so be prepared. You need to look for a reputable lender who suits your needs.

Compare Loan Costs

Interest Rate

As we�ve seen, interest rates vary a lot according to the lender, prevailing interest rates, and the type of loan-- either fixed or variable rate loan. You�ll see how much the interest rate affects your monthly payments on a mortgage calculator. For example, an increase from 7 percent to 8 percent on a $150,000 fixed rate loan, with 10 percent down, raises the monthly payment from $900 a month to $990 a month.

Interest Rate Locks: What's the Key to Locking In?

This is another selling point to compare between lenders. On fixed rate and some variable rate loans, locking-in your interest rate is a way of insulating yourself from rate hikes while your lender processes your loan application. Locks are available for varying time spans, from 10 days to 120 days. The average length is 30 days. Some lenders offer a "float-down" option that lets the rate drop if it goes below the lock-in rate. Beware of fees, however, that might make this deal less than attractive. Whatever you do, get it in writing.


Lenders charge borrowers "Points," otherwise known as discount points and loan origination fees. This is the big-ticket item on your list of loan costs--one point is equal to one percent of the total loan amount, or $1,500 on a $150,000 loan, for example. Discount points are the largest fees most lenders charge. Some also apply a one-percent or one-half percent loan origination fee. Be sure to add both before you calculate your total points.

Mortgage Insurance Premium

Private mortgage insurance applies to you if you're buying a home with less than 20 percent down. Ironically, it doesn't insure you for anything--it simply protects the lender in case you default. It adds about $43 per month for every $100,000 borrowed, or $516 per year.

Title Services

This includes survey, title search and title insurance, to make sure the home is free of liens and encumbrances. Title insurance protects the lender from mistakes in the title search.

Loan Processing Fees

These include document handling, preparation and other "fees" associated with processing the loan. Keep an eye on these fees and stay clear of lenders that pad the loan costs with excessive fees.


Adjustable-rate Mortgage (ARM)
A mortgage whose interest rate is adjusted periodically corresponding with changes in a specified index.
Balloon Mortgage
A loan which is amortized for a longer period than the term of the loan. Usually this refers to a thirty-year amortization and a five-year term. At the end of the term of the loan, the remaining outstanding principal on the loan is due. This final payment is known as a "balloon payment."
A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic payment cap, and periodic rate cap.
The difference between the fair market value of the property and the amount of debt outstanding against it.
Fixed-rate Mortgage (FRM)
A mortgage in which the interest rate remains constant during the entire term of the loan, regardless of the change in market interest rates.
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. An amount known as a margin is added to the index to determine the interest rate that will be charged on the ARM.
An agreement guaranteeing a specific interest rate and points if a transaction is closed by a certain date.
Lock-in period
The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.
The amount added to an index to establish the interest rate on an adjustable-rate mortgage (ARM) on each adjustment date, subject to any limitations on the interest rate change. See Index.
Points (loan discount points)
Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount.
Title search or examination
An examination of municipal records to determine the legal ownership of property and to confirm any liens, special assessments, other claims or restrictive covenants filed in the record



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