For first-time homebuyers, here's primer on mortgages
A: First, go to the Consumer Financial Protection Bureau website (
Once you have signed a contract for the purchase of your new home, condominium or cooperative apartment, and assuming you do not have all of the cash in your bank account, you will need to obtain a mortgage loan.
There are many different loans on the market — and many different loan programs from which to choose. You should contact at least three different lenders, and ask them to give you a list of the loans they offer. Take careful notes, and remember one important thing: Do not give any lender money until you are absolutely certain this is the lender — and this is the loan — you want to obtain.
The three basic loan programs are as follows:
ARMs adjust on a periodic basis, although in most cases they will run for a period of 30 years. Generally speaking, the shorter the term of the adjustment (such as a one-year ARM), the lower the initial interest rate will be. However, when the adjustment period comes around, the interest rate for the next adjustment will either go up or down, depending on the economy.
When interest rates are falling, an ARM seems like a good deal. However, when interest rates are rising, the consumer who obtains a one-year ARM is almost guaranteed to see an interest rate hike as high as 2 percentage points at the end of the first year.
All lenders have, or should have, a written explanation of the way their ARM works. Read it carefully and seek aid from financial and legal advisers if you have questions.
It is not possible in a short article to fully discuss the various mortgage loans on the market. Furthermore, creative lenders are always coming up with new programs. However, not all these loans will be in your best interest.
You should shop around, and don't accept the first loan offered. After all, remember that the life of the loan may be as long as 30 years, and that's a long time to be stuck with an uncomfortable loan.