This article is a lesson in responsible home buying. Why do you need to be a responsible home buyer? Because nobody else will look out for you during a real estate transaction.
Behold...

• The mortgage lender wants to make money off you by (A) granting you the loan if at all possible and (B) charging the highest interest rate possible without scaring you away. It's just business.


• The seller wants to make as much money off you as possible, because that is what sellers do.


• Your real estate agent is probably not a mortgage professional, and therefore cannot give you advice on how much you can afford.

So who does that leave? It leaves you! You are the only person who will be looking out for your financial best interests during the home buying process.

And I'm reminding you of this fact because a lot of home buyers seem to forget it. Just look at the mortgage mess we have experienced over the last two years. Many of the foreclosures we have seen were the result of home buyers who (A) did not conduct the proper research; (B) did not determine a realistic home-buying budget for themselves; and (C) relied on other people, such as mortgage lenders, to look out for their financial interests.

These are critical mistakes that you must avoid when you buy a home of your own. And here's how to go about it.

Determine How Much You Can Afford

Before you even begin the house-hunting process, you should find out how much of a mortgage loan you can comfortably afford. In this context, "comfortably" means the amount you can pay toward a mortgage each month while still having money left over for living expenses, savings, and quality-of-life items, etc.

The last thing you want is a mortgage payment that forces you to "squeak by" each month, or one that puts you into a foreclosure situation.

Using Mortgage Calculators

A mortgage calculator can help you determine how much of a home you can afford, because it will reduce the hypothetical sale price of a home into monthly payments (factoring interest and the down payment into the equation as well).

Of course, the monthly payment will partly be determined by the interest rate you get on the loan, which will be determined by your credit history and other factors. But this will give you a good idea of where you stand.

Beware of the ARM Loan

An adjustable rate mortgage (ARM) loan can be tempting, because it usually offers a lower introductory rate than a traditional fixed mortgage. But "introductory" is the key word there -- an ARM loan will adjust or "reset" after a few years, and this usually means an increase in the interest rate.

ARM loans are not evil. There are certain scenarios where it makes perfect sense to obtain such a loan, if for example you will only be living in the home for a few years. The key is to understand (A) how this and other types of mortgage loans work and (B) how that affects you as a borrower.

It can sometimes be tempting to "buy above our heads" when it comes to real estate. Nearly every home buyer has felt the temptation to buy that beautiful house that's just a bit above the budget. But you must exercise caution and responsibility in such moments. You must ask yourself the hard questions about your finances ... you must do your homework and consider the long term ... you must rely only on yourself. These are the keys to avoiding mortgage nightmares in today's economy.

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