Mortgages

Paying for your home

It used to be that when you paid off your mortgage, you had a party to burn the bank documents. Today, two thirds of American homeowners have mortgages on their properties with an accumulated debt of $8.2 trillion. They amassed much of that since 2000, when the level of interest rates dropped to historical lows, motivating renters to buy for the first time. While the dollar amount is significant, the substantial increase in home prices between 2000 and 2005 has greatly improved the average Americans net worth. For most people, their home is their biggest investment.

Mortgages are forced savings vehicles. Most people when left to make their own financial decisions often procrastinate or worse, make poor choices without doing any research. With a mortgage, you know that every month a large portion of your paycheck is going to pay principal and interest. Slowly you chip away at the debt until one day, 15 or 30 years down the road, you've paid down the entire debt. There is no retirement vehicle quite as effective.

For those who have never taken the trip down mortgage lane, here is a list of things to keep in mind as you explore your options:

• Before starting into the home-buying process, make sure that your credit report is accurate and complete. The lenders you choose to work with will use your FICO (an abbreviation for Fair, Isaac & Company) score to assess your suitability for a loan.
• Put together a budget that reflects all of your current income and spending so that you'll have an idea how much you can afford to borrow.
• Meet with a variety of lenders and don't settle until you've found the right one for your circumstances. Make sure that you're pre-approved for an agreed-upon amount before going any further. This will show your real estate agent that you're serious about buying a home as well as speeding up the loan process.
• Figure out the must-haves in your home. This will help focus the search process.
• See as many homes as possible. You'll know when you find the one that's perfect for you and your family.
• Lastly, once you've found your dream home, make an offer and let the home-ownership process take its course.

Buying your first home can be scary if you don't have a strategy. As they say, plan your work and work your plan, and you'll be ready to take on the responsibility of a mortgage.