Mortgages are not one-size-fits-all propositions. You truly need to do your homework before signing a major contract. If you bite off more than you can chew, you may lose your good credit status, as well as your home. One of the first steps you can take is to audit your finances. Know what you can afford. If youre a little unsure about how to go about mapping out your finances, go to several mortgage websites. More often than not, there will be a free mortgage calculator available for people like you.

Now that weve got that out of the way, lets begin the home buyers guide.

Home buyers guide tip #1: Decide between a fixed rate and an adjustable rate mortgage

If youre interested in a fixed rate mortgage, you do not like surprises. The interest rates never change and neither do the monthly payments. Typically, the fixed rate mortgage can be purchased at either 15 or 30 years, although there are also some 20-year fixed rate mortgages as well.

On the other hand, adjustable rate mortgages are unpredictable, thus should only be purchased by people with a steady income. The adjustable rate could be lower or higher than the fixed rate, depending on the economy. As general interest rates increase, so will your payments.

There are many websites that will offer a questionnaire for the home buyer to fill out in order to determine which mortgage is right for him or her. This is highly recommended.

Home buyers guide tip #2: A fixed rate and an adjustable rate mortgage arent the only mortgages available

There are dozens of mortgages available out there. You just need to know where to look. Have you ever heard of a two-step mortgage? Well, it combines the elements of both an adjustable and fixed rate, sometimes alternating for specific payment periods. Purchasing this loan can improve your credit significantly.

Another interesting loan is the balloon mortgage. The balloon mortgage allows the borrower to have lower payments and a low interest rate for up to 10 years. After that, the borrower must pay off the remaining balance all at once (lump sum). If you plan to change homes within 10 years, this may not be the best option for you, because you could be saddled with excessive penalties and fees.

If you have less than honorable credit, you can opt for a subprime mortgage. If you purchase a subprime mortgage, this means you will have to pay higher interest rates and more fees. The only bright spot of this mortgage is that it allows a person with bad credit to become a homeowner, but at what cost?

Home buyers guide tip #3: Know the terms

Before you sign your name on any mortgage papers, make sure you know the terms of your repayment. If you dont know the mortgage terms, find a lawyer to help you go through the papers. You should also ask questions of the lender. If the company seems hesitant to answer your questions, there is a possibility that they may try to swindle you. A good lender will listen and answer most of the questions you have.