I really want to own my own home, but I'm not sure I can afford it. Where do I start? Lots of people don't even consider buying a home because they're afraid they can't afford it. But for most people, home ownership is within reach - especially with some of the special programs for first-time home buyers. In fact, for many, home ownership is as affordable as renting - in some cases even more affordable. The best place to start is with a mortgage lender affiliated with the Mortgage Bankers Association of America. One who can help you explore all the options of home ownership. How do I know how much house I can afford? Before you start looking at homes, you need to have some idea of what you can afford. As a general guide, you can purchase a home with a value of two or three times your annual household income, depending on your savings and debts. However, you may be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. If you'd like to know exactly how much you can afford, talk to a mortgage lender. If you're working with a Realtor®, he or she can also help. When should I talk to a mortgage lender? The short answer: When you start thinking about buying a home. It's true you can't actually apply for a mortgage until you've chosen your home and signed a contract for purchase. But, you shouldn't wait until then to start talking with a mortgage lender. Any reputable mortgage lender will be happy to help you as you look for a home. The lender will work with you to determine how much house you can afford, help steer you to special mortgages for first time home buyers, and perhaps make suggestions that could make it easier to get the best mortgage terms possible. Another advantage: You'll already have a relationship with a lender when it comes time to apply for your mortgage. How do I choose a mortgage lender? When most people think about choosing a mortgage lender, they think about finding the lowest rate. Period. Of course, financial considerations are important to every home buyer. Certainly, you should consider the different rates lenders in your area offer on comparable loans. But you also want a lender you can trust; someone you can work with effectively. So don't let rates be your only criterion. Aren't there really just two kinds of mortgages: fixed and adjustable rate? You could say that, because all mortgages fall into one of two categories. The interest rate you pay is either the same (fixed) for the life of the mortgage, or it can vary (adjust or variable) over the life of the mortgage. Fixed-Rate Mortgages With fixed-rate mortgage your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable. Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.) Adjustable-Rate Mortgages (ARMS) These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home. However, the interest rate changes at specified intervals ( for example, every year) depending on changing market conditions. If interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment could also drop. There are also mortgages that combine aspects of fixed and adjustable rate mortgages - starting at a low fixed-rate for seven to ten years, for example, then adjusting to market conditions. Ask your mortgage lender about these and other special kinds of mortgages that fit your specific financial situation. How do I know which type of mortgage is best for me? There isn't a single, simple answer to this question. The right type of mortgage for you depends on many different factors: Your current financial picture; How you expect your finances to change; How long you intend to keep your house; And how comfortable you are with your mortgage payment changing from time to time. For example, a 15-year fixed-rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. And an adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage -- but your payments could get higher when the interest rate changes. The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage lender. Do they really need to know everything about me for the application? It may seem that way -- but actually all your mortgage lender needs to know about you is your employment and finances, and information about the home your buying. However, you will need to provide quite a few details about these topics, and your application process will go much more smoothly if you're prepared. Be sure to ask your mortgage lender what information you'll need in order to complete your application. How much will my credit history affect my ability to get a mortgage? Many home buyers are very worried about this issue. We've even heard one story that an applicant was denied a mortgage because he had returned a rented videotape late! Of course, that could never happen. And most people don't need to worry about the effects of their credit history. However, you can be better prepared if you get a copy of your credit report to review before you apply for your mortgage. That way, if there are any errors, you can take steps to correct them before you submit your application. If you have had credit problems, be prepared to discuss them honestly with your mortgage lender -- and come to your application meeting with a written explanation. Responsible mortgage lenders know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had a problem that's been corrected, and your payments have been on time for a year or more, your credit will probably be considered satisfactory. How much will I need for the down payment? It's probably less than you think. Many first-time buyers are surprised to learn there's no set answer to this question. Generally, though, your down payment can be anywhere from three to twenty percent of the home's appraised value. Down payments can be lower for some special, first-time buyer and veterans, or those on active military service can obtain loans with no down payment at all. What does my mortgage payment include? For most homeowners, the monthly mortgage payments include three separate parts: a payment on the principal of the loan (that is, the amount borrowed); a payment on the interest; and payments into a special account (called an escrow account) your lender maintains to pay for things like hazard insurance and property taxes. These elements are called P.I.T.I. (Principal-Interest-Taxes-Insurance). What happens after I've applied - and how long will it take? Your lender will begin the work of verifying all the information you've provided. This process can take anywhere from one to six weeks, depending on the type of mortgage your choose, whether you're buying a home outside your local community, and other factors. Within three business days after your application, the lender must give you an estimate of your closing costs. (The closing is the actual settlement of your loan.) You'll also get a statement that shows your estimated monthly payment, the cost of your finance charges, and other facts about your mortgage. For many home buyers, this waiting period can be nerve-wracking. So stay in touch with your mortgage lender. Be prepared to answer any questions that might come up, and, remember that mortgage lenders are in the business of making loans, not denying them. Some homebuyers find the closing process to be one of the most intimidating aspects of buying a home because it's so unfamiliar. Ask your mortgage lender what to expect at your closing. How long does it take to obtain loan approval? Depending on your credit history and down payment and the loan program selected, some lenders may be able to approve your mortgage in as little as 24 hours. The average number of days from application to approval will vary from lender to lender. However, 7-10 business days is typical. How long will it take to close if I applied for my mortgage through a "pre-approval" program? If you applied through a "pre-approval" program and were approved, some lenders can close within 3 weeks after a purchase contract has been signed. In most cases, 45-60 days from application to closing is typical. Each lender's timeframe will vary and the transaction itself may cause the timeframes to vary. If I refinance my loan with my existing lender, will I have to pay all the closing costs again? Typically, yes, as there is a cost to process any new loan application. This cost may include fees paid to third parties, such as the appraisal provider and the title and closing providers. Will the lender agree to include my closing costs in the loan amount? On a purchase transaction, you typically cannot finance your closing costs into the loan amount. Some lenders do, however, have special programs under which you may be able to finance some, or all, of the costs by agreeing to a slightly higher interest rate. Also, if you are refinancing, you may be able to refinance some, or all, of your closing costs. How quickly can a lender close on my home loan? Many lenders can facilitate closing 2 to 3 weeks after you have agreed on a purchase contract for a home. If you need more time, you can take as long as you need, as long as the closing occurs prior to any rate lock expiration dates. Many lenders require 30-60 days from purchase contract and application to closing. Can I close on a home without having to be at the closing table? Many lenders are willing to accommodate what is termed a "mail away" closing. You may also appoint someone to act for you by using a Power of Attorney. In this scenario, you would actually assign someone to sign on your behalf. Each state has its own specific requirements, so please check with your closing agent for state specific requirements. If you select a "mail away," the lender will coordinate overnight delivery of the documents to ensure a timely closing. Please note this process may require some additional coordination time. What is direct billing? A direct billing program allows a relocation lender to pay all the non-recurring closing costs on your behalf and, in turn, bill them directly to your employer. This makes the closing process easier and reduces the out-of-pocket expenses you are responsible for at the time of closing. Direct billing is only available in certain situations. How much money will be required at closing? You should consult with your individual lender and closing agent; however, the amount of money needed for cash to close is comprised of your down payment, closing costs, as well as the prepaid items for your initial taxes and insurance escrow accounts. A lender is required to provide you with a good faith estimate of settlement costs at the time of application. Also, typically within 24 hours prior to your closing, the closing agent will provide you with the final sum of money required for the closing. Does the lender require title insurance for purchase transactions? Yes, a Mortgagee's Title Insurance Policy will be required on purchase transactions. What homeowner's insurance requirements will I need to meet at closing? Most lenders require a one-year paid receipt for homeowner's insurance policy for at least the amount of the mortgage at the loan closing.