Initial considerations

After you make the decision to become a homeowner, you must face an even tougher decision: choosing among the wide range of home loans that are now available to consumers. Don’t feel overwhelmed; answering a few basic questions will help lead you to the right decision.

The first question is: what kind of monthly payment can you afford? Think about your salary and your other income, like investment returns. Think about your savings. Make a list. Next, think about your expenses. Make a list of your bills. Look at your monthly budget. Figure out what money will be left over to devote toward paying off your mortgage loans. Remember to leave some money for emergency maintenance and entertainment.

The second question is: do you have plans to move in the near future? If you’re planning to live in your new home indefinitely, you might be better off with a fixed-rate mortgage. On the other hand, if you know that you’ll be moving after five years, a balloon mortgage might be better.

Finally, you should ask yourself: what is the future of my finances? Obviously, you cannot count on a raise or a hike in the stock market to meet your monthly payment. If, however, you are reasonably certain that your financial situation will change in the future, you may want to factor that change in. Similarly, if every financial expert is predicting a significant drop in interest rates, you should probably take that into account.

Home loans are not something that you buy everyday, and therefore deserve your most careful consideration.