Buying a luxury new home, especially a first home, is a big financial and emotional step. If buying a luxury home is important to you, do your financial homework. Investigate your mortgage options. Determine what level of monthly mortgage payment will be affordable and comfortable. Use some discipline to save your down payment. Here are some simple steps to guide you through this process. Figuring out how much of a house you can afford will largely be dependent on the level of your monthly payments. While there will be property taxes, insurance and upkeep, your monthly payments will probably be the most important part of your decision. The fine line you walk when determining a level of down payment is based on the level of mortgage payments you can afford and how much money you have for the down payment.

Estimating your mortgage payments

Mortgage rates are constantly changing, and there are different types of mortgages available. Here is a chart showing monthly payment levels for different amounts at various interest rates. It is based on using a 30-year fixed mortgage. While payments with a 15-year mortgage will be higher, you will pay off the mortgage sooner and pay much less interest over the life of the mortgage.

Monthly Mortgage Payments at different interest rates (30-year fixed rate mortgage)

If you are looking at mortgages of different levels, you can use the chart to estimate or use a mortgage payment calculator on the Internet. Accumulating a down payment Most lenders require certain levels of down payments to consider you for a mortgage. It often ranges from 5% to 20-25% of the purchase price. The larger the down payment, the more comfortable they will probably be giving you the mortgage. If you do not have a 20% or higher down payment, you will need to include the cost of Private Mortgage Insurance (PMI) in your monthly expenses. You should also remember that it would be a good idea to have some extra money available after you move into your new home. New carpeting, new furniture or improving the landscaping all take money. Be careful not to stretch yourself too thin.

Here are some strategies for building funds for your down payment.

1. Save. As simple as it sounds, most people end up saving for a couple of years to accumulate the amount needed. This may mean less or cheaper entertainment or less frequent dining out. One easy way to save is to enroll in an automatic savings plan at your financial institution. Have a certain amount transferred from your checking account to a dedicated savings account each month. This provides some discipline, and you may be able to use a money market type of account to earn higher interest.

2. Borrow the down payment from your retirement plan. Many company-sponsored 401(k) or profit sharing plans have provisions to let you do this. Check the details of your plan. Your Human Resources or Payroll department can help.

3. Move to lower your monthly living expenses. Living in a cheaper apartment while you accumulate your down payment can help you reach your goal faster. Cheaper rent may balance off a longer commute to your job. If you are just starting out or are considering changing jobs, you may want to consider an area that has a lower cost of living.

4. Reduce other high interest-rate debt. Paying off credit cards will use up some of your savings in the short term, but decreasing your higher rate debt will ultimately help you save more.

5. Negotiate a second mortgage with the seller. In order to help sell their home, the seller may be willing to take a second mortgage for part of the purchase price. Be careful if you are considering this and make sure a qualified attorney looks at all the documents.

6. Sell some of your investments. Consider the home you’re saving for as your most important investment opportunity.

7. Get a second job and save your earnings. This new source of savings will help you accumulate the funds you need even faster.

8. Skip a year's vacation. Eliminating discretionary expenditures like this to achieve your goal of home ownership may yield greater pleasure in the long run.

Frequently Asked Questions

When shopping for a mortgage loan, what else should I consider besides the rate quoted?
Educated consumers always review the Annual Percentage Rate (APR) in addition to the quoted rate. The APR includes discount points, organization fees and other charges to give a more complete description of the finance charge.

Why do closing costs differ between mortgage lenders?
Most of the components of closing costs should not change from one quote to another. Items such as Deed Tax Stamps, Title Insurance, and Appraisal Costs should be uniform from one company to another. Closing cost estimates that seem higher than normal should be reviewed for excess fees and charges.

Why do interest rate quotes differ from one lender to another?
The cost of money is much like the stock market in that rates change from one day to the next. Also, sometimes there are hidden charges which give the false impression of lower rates. Check your Good Faith Estimate for Settlement Charges in addition to the rate quote for the real price of your loan.

How often will my payment change if I choose an adjustable rate loan?
That will depend on the type of loan chosen. Loans are available in which the payment is subject to change monthly, annually, or after the first 3, 5, 7, or 10 years. See your loan officer for a complete description of available loan programs.

Is a pre-approval just as good as a loan commitment?
No. A pre-approval is just one person’s opinion and cannot be relied upon. Only with a full loan commitment can you be sure that mortgage money will be available to you and under what conditions.

How important is my credit score for determining whether or not I qualify?
Your credit score is very important to determining if you qualify and what your interest rate will be. Contact a Kipp Myers at Graystone Mortgage or one of J&J & Sons Construction other select loan officer and find out how high your score is. A higher score is better.

Will I have to make a down payment in order to buy a house?
Maybe not. While a down payment of at least 5% will entitle you to a lower interest rate, lower down payment mortgages, including zero down, are available at a somewhat higher interest rate.

Can I lock in my interest rate while my house is being built?
Yes, you can. J&J & Sons Construction select mortgae companies offers long term interest rate lock programs for up to one year. See one of J&J & Sons Construction select loan officer for details.

What is a discount point or “Points”?
A point is prepaid interest. Each point is equal to 1% of your loan amount. Paying points will reduce the interest rate on your loan. Check with your loan officer to see if paying points and reducing your rate is right for you.

Should I get an adjustable rate loan?
An Adjustable Rate Mortgage (or ARM) could be the right choice for your family if you want or need lower payments, think that rates will go down over time, or will live in your home from one to five years. Many ARM loans are also assumable, which means that, should you sell your home, a new buyer may be able to take over your payments.