by Wayne Whicher

Created on: April 28, 2009

Ask questions! A lot of questions, and then more questions. Surround yourself with mortgage professionals and ask enough questions about the financial aspects of buying a home as you prepare to make the largest purchase of your life.

Your monthly payment will be made up of your mortgage principal, interest on the loan, real estate taxes, and homeowners insurance. Once you have an area and size of the home in mind, call your insurance professional to inquire about the yearly cost of your homeowners insurance. They can give you a rough estimate.

For real estate taxes, inquire with the town/city. Most cities have a tax collectors office that will be able to give you lots of good information. What is the current tax rate? What is the current assessment? Assessment is what the town thinks your home is worth. This is based primarily on other home sales of similar size, location and structure. When was the area last assessed? Are there any plans to reassess the homes in the area in the next few months/year? Do not make your monthly payment the maximum of what you can afford, as you may find your area reassessed within a year or two and find your monthly payment increasing by hundreds of dollars a month.

Interest on your loan can be a fixed interest rate or a variable rate. For those homeowners planning on staying in the same home for the long term, often times fixed interest rates are best. If the mortgage market declines in future years, you can always refinance at a later point to a lower interest rate depending on your credit. Variable rates are generally good for those people who move on a routine basis. Be careful, as if you are caught in a variable mortgage the rates could increase significantly later on if you don't relocate.

Your mortgage principal: There are many calculations out there. For first time home buyers, do NOT overextend yourself. Know your own budget and what you can afford. What do you currently pay in rent? Ratios of what you can afford can be determined by working with mortgage lenders, using on line calculators, or talking to mortgage consultants. Often times you will be told that you can afford a MUCH higher payment than you think you'll be comfortable with. An old rule of thumb was that not more than 28% of your gross monthly income should be used for housing costs.

For those people who put down less than 20% of the house cost, you will also have to pay for Private Mortgage Insurance or PMI. This amount will be added to your monthly payment until such time as your loan amount is less than 80% of the home value. If you are paying PMI, you can have your house appraised at a later date to see if the value has increased, and then stop paying PMI. Or, after a few years of paying on your loan you will naturally reduce your loan to less than 80% of the value of your home.

Know your budget. Utilities will often be higher in a home than they were in an apartment. As will heating costs and repair costs. By using professionals to do an inspection of the home before you purchase, you can better find out what you may have to plan on for repair costs in the near future.

Plan everything out. Pad into financial equations a buffer as things will happen that you can not plan for. Make sure that you are not going to be "house poor" and find yourself using every extra penny in keeping your home paid for. Saving for a few more years and having a larger down payment will help reduce costs as your loan will be smaller, you won't have to pay for PMI and you might be able to get a larger, newer home.

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