What Should I Know Before Buying a Home?
Buying a home is the American Dream for many of us. But the home purchase is a complex financial decision that requires some knowledge of the types of mortgages out there. So, before you choose a home, be sure you understand the different types of financing. he lender and type of loan you choose will affect your upfront costs as well as your monthly payments.
- A fixed-rate mortgage will have the same principal and interest payment amounts throughout the life of the loan, and can be repaid in 30 years or less.
- An adjustable-rate mortgage, or ARM, will have interest rates and payments that change from time-to-time over the life of the loan. Depending on the type of ARM you have, your interest rate may increase gradually every few years until it reaches a preset ceiling. Or, your rate may stay level for a short time, then have a large final payment (“balloon payment”) at the end. When you apply for an ARM, you’ll be told how, when, and why the rates may change.
Take a look at the table below to understand the pros and cons of fixed and adjustable rates:
You can find more information about mortgages at your library or by going online. Many public and non-profit organizations are waiting to hear from you.
- The U.S. Department of Housing and Urban Affairs offers a homebuyer’s kit that contains valuable information about finding, financing, and keeping a home. Go to www.hud.gov/buyhome.html.
- Fannie Mae provides education and counseling to help consumers prepare for homeownership. Call 1-800-7FANNIE (1-800-732-6643) or visit their Web site at www.fanniemae.com.