2torial #0935:
Learn2 Buy a Home (continued)

Decide what you can afford

When you've settled on a broker, it's time to crunch the numbers and figure out the size and type of mortgage you can afford. Here's how it works:

Assess your finances. Your lender or mortgage broker will perform a financial analysis, taking into account your income, profession, debts, savings and investments, and credit history. Then he or she will tell you exactly what you can get. Lenders may offer you more than you can comfortably repay, so be sure your monthly payments won't break the rest of your budget.

Investigate financing options. In the past, virtually all home buyers took out fixed-rate mortgages, with payments that remained the same for the life of the loan (typically 30 years). Today, there are literally hundreds of mortgage products, ranging from floating-rate mortgages with payments that move up and down with overall interest rates, to balloon mortgages with low initial payments that increase substantially over time. If you're considering one of these newfangled mortgages, be sure you understand all the terms so you don't get blindsided. Some of them may work in your favor, and some may have you bankrupt before you know it.

Note: Make sure any monthly payment quote includes related costs such as private mortgage insurance (if required), home owner's insurance, property taxes, and home owner's association fees that may apply. If it doesn't, make sure you can afford these items in addition to the mortgage.

Get pre-approved. Pre-approval means a mortgage lender has gone over your finances and is committed to lending you a certain amount of money to purchase a home. Sellers are much more likely to accept your bid if they know you can back it up with quick cash. Pre-approval is especially important in tight markets, where available housing gets snatched up fast.