Financing your new home

You have decided that you want to buy a new home. One of the first steps towards this goal is to take a realistic look at what you can afford. New homes are purchased with cash, or with a combination of cash (a downpayment) and a mortgage loan. If you are like most people, you will probably have to finance your home purchase with a mortgage loan. 

What Is A Mortgage?

A mortgage is a consumer loan for the purpose of buying a home, using the home you are buying as security. This loan is registered as a legal document against the title of your property. Important aspects of a mortgage loan include:
Principal - the amount of the loan, or the cash actually borrowed.

Interest - the amount the lender charges for the use of the funds, or principal. Interest rates vary according to many factors, including the term and conditions (see below). The borrower is expected to pay back the principal together with interest. Mortgage payments are applied toward both principal and interest. 

Amortization period - the actual number of years that it will take to repay the entire mortgage loan in full. This normally ranges from 15 to 25 years.

Term - the length of time for which a mortgage agreement exists between you and your lender. Typically, terms range between six months and seven years.

Maturity date - the end of the term, when you can either repay the balance of the principal or renegotiate the mortgage at then current interest rates.

Options tailoring the mortgage to your personal needs and circumstances. Open or closed mortgages, pre-payment options, fixed or variable rates or portable mortgages are just a few of the options available to today's borrowers.

How Much Can You Afford?

How much you can afford to spend for a new home is determined by two factors:
The amount of downpayment you have available. A larger down payment will decrease the amount you need to borrow. This can lower your mortgage payment or, even better, help you pay off the mortgage as quickly as possible, thereby saving thousands of dollars in interest payments. (Be careful, though, to set enough money aside to cover the other expenses of buying a home.)

Step One: Calculate the maximum monthly payment you can afford

Step Two: Calculate the size of the mortgage loan your payment will handle

Once you have worked out how much you can afford in monthly payments, you can determine the maximum amount of the mortgage loan that you qualify for.Subtract the estimated property taxes and heating costs from the total maximum monthly payment . The remaining sum is what you have available for the principal and interest.

Check with your bank or other financial institution for the current interest rates. All financial institutions provide mortgage information and publications to consumers free-of-charge, including monthly payment factors and mortgage tables to help you calculate the amount you can borrow.

Add your downpayment to the calculated mortgage amount and you will have a good idea of the price range of the homes that you should be looking at. 

Be Aware of the Total Costs When you calculate how much it will cost to buy a home and how much you can afford, don't forget to include the "extra" expenses that you may encounter. Ask your builder and the sales representative for detailed estimates, and consult with your bank manager and lawyer for further information.

Appraisal fee
Mortgage insurance application fee
Mortgage insurance premium, (can be added to mortgage amount)
Legal fees and expenses
Adjustments on your current dwelling, if being sold, (utilities, taxes, fees, etc.)
Fire insurance premium
Moving expenses
Appliances for the new home
Furniture, draperies, etc.
Maintenance equipment (lawn mower, snowplow, etc.)
Other
Finding The Mortgage That Is Right For You

Shop for a mortgage in the same way you shop for any other product. Take the time to do your research. 
Banks, trust companies and other financial institutions are offering more ways to finance a new home purchase than ever before, with a wide range of options, features and services. Check with several different institutions. Be prepared to ask questions, and compare the answers to find the financing options that are right for you.

Ask your builder about mortgage choices. The builder or sales representative can often help you to obtain a mortgage. Some builders also offer pre-arranged mortgages with features that may not be readily obtainable by the individual purchaser, such as bridge financing, free mortgage consultation and pre-paid or reduced appraisal fees.

Get Pre-approval On Your Financing 

Being approved for a mortgage before you begin looking for your home means that you can enter the marketplace with confidence. A pre-approved mortgage is preliminary approval by the lender for a mortgage up to a certain amount, usually with a guaranteed rate for a specified number of days. 

Pre-approved mortgage financing is simple to arrange and costs nothing. The final mortgage amount and terms will be determined once you have reached a final agreement with your builder.

Finishing The Financial Picture

You understand the mortgage financing that is available to help you purchase your home, and you have a good idea of the price range that you can afford. In addition, you should consider the following points:

CONTENTS:

A great time to buy a new home
Do your homework before you go shopping
Financing your new home
Buying a new home may be possible sooner than you think

Main Links: 
1. Why Buy New?
2. Your Budget and Financing Options
3. Choosing Your New Home Builder
4. Getting the Home that's Right for You
5. Becoming a Homeowner