First-Time Homebuyer’s Guide

The hurdles are high, but here aretips for making your first move your best

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Let’s face it: your mortgage is probably going to be your biggest monthly bill. Yet, in all the euphoria and frenzy involved in landing a new home, you probably don’t realize how much of a load it will really be. So when it’s time to find a lender, you must pay close attention to the types of loans offered and the interest rates. On closer inspection, you’ll find your choice of mortgage will depend on how much risk you’re willing to shoulder.

Fixed-rate mortgages are the safe bet. Your monthly payments are locked into one interest rate, and determined by the interest paid on U.S. Treasury bills at the time of the loan. Usually fixed at 15-, 20- and 30- year rates, they’re a good bet if you plan to remain in the same home for a long time.

Another type of loan, the adjustable rate mortgage, or ARM as it’s known in the business, is cheaper, but puts the risk of fluctuating interest rates in your lap. If rates rise while you have the loan, you’ll pay more in interest. But it may be a good idea to opt for an ARM if you feel your earning power will increase over time or you don’t plan on spending more than a few years in that house. When considering an ARM, check to see that the interest rate is at least two points lower than a fixed-rate mortgage for a comparable time, so you don’t get burned on rate changes.

Some of the best loan deals going are VA loans. The Department of Veterans Affairs promises to secure up to 50% of the estimated value of your property if you were ever part of the armed forces. That’s how Capt. Candice Tillman bought her place in Fayetteville, North Carolina. As an active serviceman, Capt. Tillman qualified for a VA loan, and since her down payment amounted to no more than 1% of the final closing costs, she didn’t have to break into her savings to make her purchase.

Jennifer and Michael Stewart also bought their Norfolk, Virginia, home using a combination of a VA loan and an assumable mortgage. Under that deal, they didn’t need a down payment.

Like it or not, you’re in for additional financial outlays when it’s time to “dose” the contract on your home. Closing costs cover a variety of things, including property taxes, title search fees, taxes, appraisal and attorney fees, deed registration and homeowner’s insurance. Usually the amount is 7%-10% of the purchase price of your house.

One of the biggest up-front closing costs you’ll pay will be the “points” on your mortgage. Points are the fees the lending institution charges on the money borrowed at a given interest rate. Each point is equivalent to 1% of the total amount you are borrowing. The higher the points you pay, usually the lower the interest rate on your mortgage. If you can afford it, pay higher points to reduce the interest

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