What is the smart way to buy a home?

Q With all the mortgage
news, we're confused. What is
the smart way to buy and finance
a home?

A There has been a lot of
talk about adjustable rate
mortgages, subprime loans,
and the like and you might be
wondering if it is actually hazardous
to buy a home! But
nothing can be further from
the truth. Remember that more
than 99 percent of homeowners
pay their mortgages on
time. Buying a home is the
great route to financial security.
The rules of smart home
buying haven't changed. Simply
put: Buy a home you can
comfortably afford right now.
The first step is to get a
loan with a good interest rate.
To do that pay your bills on
time to create a good credit
rating. Next, save some money
so you can make a down payment
on your new home. The
down payment combined with
a good credit rating will give
you an affordable interest rate
and start you off with a little
equity in your new home. Equity
is the best insurance you
can have against unforeseen
events.If you want to buy a home
in the next two years, don't get
yourself in a lot of debt with things like big
new car loans.
If you can start off buying a home within
that framework, you are doing the smartest
possible thing. If you are buying what you
believe to be your permanent home, a fixedrate
mortgage is best. The 15-year instruments
carry lower interest rates than 30-year
mortgages.
You can still buy a home if your credit
isn't perfect or if you have new car payments
or if you don't have a big down payment, but
lenders will be tightening their rules and you
will have a higher interest rate. Still, if you
finance a house that you can comfortably
afford right now, you will be making a wise
move.
Interest rates also can be reduced by paying
points (one point equals 1 percent of the
principal). A new study by Penn State Col-
lege of Business and economists at Freddie
Mac, however, show that fewer than 1.5 percent
of borrowers held loans long enough to
make that decision pay off.
Many lenders offer better rates on loans
that charge penalties if the loan is refinanced
or paid off ahead of schedule. It's standard
practice for lenders to charge six months' interest
on 80 percent of an outstanding balance
if the loan is refinanced or paid off within one to five years.