8 Steps to Buying a Home
Shop for a loan
Save money by doing your homework. Talk to several lenders, compare costs and interest rates, negotiate to get a better deal, and always get preapproved for your loan. Talk with your lender to decide which type of loan is best for your lifestyle. Here are some of the popular types of loans.Fixed-rate mortgages
This is, by far, the most popular mortgage. In a fixed-rate mortgage, your interest rate stays the same for the term of the loan, which normally is 30 years. The advantage is that you always know exactly how much your mortgage payment will be, and you can plan for it. Fixed-rate mortgages are a good choice if you expect to remain in your home for a number of years.
Adjustable-rate mortgage (ARM)
With an ARM, your interest rate and monthly payments usually start lower than a fixed-rate mortgage — but can go up or down, as often as once or twice a year. The disadvantage of an ARM is if interest rates go up, you may suddenly have to make very large house payments.
Balloon mortgages
Balloon mortgages are typically offered at lower interest rates than other fixed-rate products, making them more affordable. However, principal and interest payments only remain constant for the term of the loan (about five to seven years), at which time you can pay off the mortgage or refinance. Again the bad news is when it comes time to refinance and rates are high, you'll have to make a much bigger payment.
Federal Housing Administration (FHA)
This government-insured loan allows you to buy a home with a low down payment, ranging from three to five percent, depending on the price of the home. This may provide you with much more buying power.
VA mortgages
Are you currently in the U.S. military? Ever served in the U.S. Armed Forces? You may be eligible to get a loan guarantee by the Veterans Administration (VA).