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Although buying a new home is an exciting prospect, it can also be confusing and financially challenging.

When you prepare a budget, you'll know what resources you can allocate to mortgage payments, living expenses and other financial situations. Everyone involved in financial decisions should also be involved.

Your Realtor can assist you in helping you establish a budget, review financial qualification guidelines established by financial institutions, and even suggest some ways to obtain financing, either through traditional lenders, or another institution.


Realty Terms

Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

Amortization
Repayment of a loan in installments of principal and interest, rather than interest-only payments.

Annual Percentage Rate (APR)
The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Appraisal
An estimate of the property's value provided by a professional appraiser.

Balloon Payment
A lump sum principal payment due at the end of some mortgages or other long-term loans.

Binder
Sometimes known as an offer to purchase or an earnest money receipt. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

Buydown
Permanent - prepaid interest that brings the note rate on the loan down to a lower, permanent rate. Temporary - prepaid interest that lowers the note rate temporarily on the loan, allowing the buyer to more readily qualify and to increase payments as income grows.

Escrow
A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions and assuming responsibility for handling all of the paperwork and distribution funds.

Fixed Rate Mortgage
A conventional loan with a single interest rate for the life of the loan.

Fully Indexed Rate
The maximum interest rate on an ARM that can be reached at the first adjustment.

GRI Graduate, Realtors Institute.
A professional designation granted to a member of the National Association of Realtors who has successfully completed courses covering Law, Finance and Principles of Real Estate. NOTE: Laura received the GRI designation in 2001.

Origination Fee
A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to one percent for FHA and VA loans.

Payment Cap
The maximum amount the payment can adjust in any given time frame.

Point
An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investment.

Prepayment Penalty
A fee charged to a borrower who pays a loan before its due. Not allowed for FHA or VA loans.

Private Mortgage Insurance (PMI)
Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement
A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

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What can you afford?

what can you afford?There are two types of costs in buying a home -- the initial amount you will need for your purchase and the ongoing costs of paying back your mortgage along with monthly operating costs. The largest one-time cost is the down payment. It usually represents 5-10% of the total price of the property.

Typical One-time Expenses:
• Loan fees (points, application fee, credit report and appraisal fee)
• Prepaid interest

• Property inspection (optional), due at time of inspection
• Legal fees, due at the time of closing
• Mortgage interest adjustment (if applicable), due at the time of closing
• Title insurance

• Documentary stamps on note.
• Home and property insurance, at closing and ongoing
• Home warranty (optional)

• Moving expenses

Typical Monthly Expenses:
• Mortgage payments
• Maintenance (this could be condominium fees, or allocated maintenance fees)
• Property and content insurance
• Property taxes
• Utilities

Collect the following to prepare your plan:
• Monthly rent or mortgage payments
• Utility payments (gas, water, power, telephone)
• All other monthly expenses (such as food, child care, dues, etc.).
• Annual or semi-annual expenses (such as insurance, car repair, taxes).
• Non-fixed expenses (for example, medical expenditures) for the last year. This will give you an estimate of average expenses of this type.
• Records or an estimate of personal expenses. (entertainment, travel, etc.)
• Credit card statements
• Allow for unexpected items such as medical emergencies, travel and education.

Subtract expenses from income.
Could remaining funds be directed towards a mortgage, debts or additional savings? How will a home purchase fit into your budget? Also consider items like insurance, taxes, repairs and maintenance.


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