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Buying Basics

Benefits of owning real estate

Home ownership is one of the great, and attainable, American dreams.

Owning your home can improve your financial stability and enhance the quality of life. In addition to creating tax deductions and building equity, home ownership establishes you in your chosen community.

First Steps

Determine your price range: How much house can you afford?

The 28/36 Rule

In general, the 28/36 rule is the standard used by many mortgage lenders to assess your borrowing capacity. “28” is the notion that no more than 28 percent of your gross monthly household income should go toward housing costs, including mortgage principal, interest, taxes, and insurance. “36” refers to your overall debt, which should not exceed 36% of your income, including car and credit card payments, and other expenses.


What features are most important to you? Single story? Backyard? Double car garage? Close to schools? Listing your “must have” attributes will take–and keep–your search on the right track for your particular lifestyle, budget, and needs.

  • Size of house: square footage, number of bedrooms, bathrooms
  • Style: new construction or established neighborhood
  • Location: nearness to jobs, parks, shopping, schools, entertainment
  • Features: property size, storage, updates
  • Neighborhood: families, singles, retirees, parking
  • Condition: ready to move in or fixer-upper


Choosing a general area is the next important step, taking into consideration your budget, job locations, commuter options, schools, and so much more. Driving or walking through interesting neighborhoods will help you recognize where you feel at home.

The internet is also an invaluable tool for assessing various areas, comparing what’s available, prices, and amenities.


A mortgage is a loan for a home, and the home itself is used as collateral, or a security pledge, while the loan is being paid.

Getting pre-approved for a mortgage is the smartest option, ensuring that you know exactly what you can afford, and that you are prepared to move forward immediately when the right property becomes available. You’ll also be recognized as a serious buyer, an important advantage in negotiations.

Pre-approval involves deciding on a reputable mortgage professional, and providing the financial details for them to determine that they are willing to lend you the money for your home.


Be prepared to offer these documents: Federal taxes returns, W2s, bank statements, pay stubs, proof of other income and assets, current debt information, and details about your down payment funds.

Mortgages Loan Types


Fixed rate mortgages

Monthly payment and interest rate stay the same for the duration of the fixed rate loan. This popular, straightforward mortgage protects you from fluctuating payments or interest.


Fixed period Adjustable-Rate Mortgage (ARM)

Most lenders today offer an adjustable rate mortgage featuring an initial fixed interest rate period of 3, 5, 7, or 10 years. After the fixed rate period expires, the interest rate is adjustable for the remainder of the loan term. Fixed-period ARMs are often named by the length of time the interest rate remains fixed.


Government loans (FHA and VA)

If you qualify, consider an FHA (Federal Housing Administration) or VA (Department of Veterans Affairs) loan. These programs allow a lower down payment and credit score when compared to conventional loans, although there is a maximum loan amount depending on where the home is.


Federal Housing Administration loans

FHA loans are helpful for applicants who don’t have the 20% down payment saved, or who need more flexible income or credit requirements. Also, FHA loan programs require mortgage insurance, similar to private mortgage insurance, or PMI. Under FHA, this is called a “mortgage insurance premium,” or MIP. You will pay an upfront mortgage insurance premium (UFMIP), which must be entirely financed into the mortgage or paid in cash; it cannot be partially financed. You will also have an annual insurance premium, paid monthly with your mortgage. Don’t forget to factor that amount in when you set your budget.


Department of Veterans Affairs loans

To qualify for a VA loan, you must be a current or former member of the U.S. armed forces or the current or surviving spouse of one. Insured by the Department of Veterans Affairs and offered by VA-approved lenders, these loans can help reduce your down payment requirement, sometimes to zero, or help you get a lower interest rate on your loan. However, there are limits on the available loan amount. Tell your lender if you qualify for a VA loan.


Jumbo loans

A loan is considered “jumbo” if it exceeds the conforming high-balance loan limits: the current conforming loan limit for a single-family home is $417,000 for all states—except Hawaii and Alaska, where it is $625,500.

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