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The Roller Coaster Ride of Purchasing a Home

Buying a house creates that funny feeling in our stomachs, kind of like that tingly sensation you feel when riding a roller coaster. That feeling that comes partly from excitement and partly from good old fear. For first time home buyers, as well as current home owners looking to purchase again, a primer on some of the factors in home purchasing can come in handy.

Costs When looking to buy a house, consider that lenders will generally require you to make a down payment of ten to 20 percent of the price of the house, as well as to pay for closing costs, which are approximately six percent of the price of the house.

Amount of Mortgages A general rule of thumb for how much of a mortgage loan you will qualify for is two to two and a half times the annual income of your household. If you have an income of $50,000 a year, you would be eligible for a mortgage of $100,000 to $125,000. Of course, loan officers will consider many other factors to determine your qualifying loan amount. One factor is your housing expense, including mortgage payments, insurance, taxes, and special assessments. Lenders like this expense to be less than 25 to 28 percent of your gross monthly income. Other long-term debt (debt that extends beyond ten months) is also considered in your loan evaluation. That debt, added to your housing expenses should not exceed 33 to 36 percent of your gross monthly income. Your past employment and credit history will also be considered during this process.

Types of Mortgages As you prepare to find the right mortgage for your situation, notice that two types of mortgages exist-those with fixed interest rates, and those with changing interest rates. You will find much variation on these two themes, so be sure to research carefully and understand the nuances of the mortgage you select. Typical fixed-rate mortgages include 30-year, 15-year, and biweekly mortgages. Generally, you receive the lowest monthly payments for fixed-rate loans with the 30-year mortgage, which offers a fixed monthly payment schedule.

A 15-year fixed-rate mortgage will get you to ownership in half the time, for less than half the total interest costs of a 30-year loan, but requires higher monthly payments.

A biweekly mortgage shortens the loan term from 30 years to 18 or 19 years since it requires a payment for half the monthly amount every two weeks. You pay about eight percent more a year towards the loan's principal than you would with the 30-year, one-payment-per-month loan, but you pay much less interest over the life of the loan. Remember, though, with shorter-term loans, you receive lower total costs in exchange for smaller mortgage interest deductions on your income tax.

This is obviously just the first hill of the great roller coaster ride of home buying, but once you get up the first hill, it's a little easier to smile and enjoy the ride.

Sources: Pamela Reeves, Scripps Howard News Service, and IFG, Inc.'s webpage.

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