The Senate voted 98-0 Wednesday to extend and expand the tax credit and the House could vote on the bill as early as today. If passed, the $8,000 tax credit would remain in effect for first-time home buyers — or anyone who hasn’t owned a home in the last three years.

• Going to Buy? Get Mortgage Pre-Approval Online

Buyers who have owned their current homes at least five years would also now be eligible for tax credits of up to $6,500. To claim the credit, both groups of buyers would have to sign purchase agreements before April 30, 2010 and close before June 30. The tax credit would be extended until June 30, 2011 for servicemen and women serving overseas for at least 90 days.

The actual credit amount home buyers are eligible for is ten percent of their home purchase price up to a maximum of $8,000 for first-time home buyers and $6,500 for buyers who already own homes.

Who is Eligible for the Tax Credit?

To qualify for either credit, you must be purchasing a primary residence of less than $800,000 and cannot be purchasing the property from a direct relative.

You are eligible for the first-time home buyer tax credit if you:

• Have never owned a home
• Have not owned your primary residence for the last least three years

You are eligible for the $6,500 home buyer tax credit if you have lived in a home you own for five consecutive years out of the last eight years. Unfortunately, it does look like these new provisions still exclude some buyers from the credit. Buyers who have owned a home within the last three years, but did not own it for at least five years, cannot take the new credit.

Income Limits

The amount of the tax credit you can claim will be phased out for single taxpayers who earn more than $125,000 and joint taxpayers who earn more than $225,000.

• Read More: How to Claim the $8,000 Home Buyer Tax Credit

Related posts:

1. $15,000 Home Buyer Tax Credit?
2. $8,000 First-Time Home Buyer Tax Credit

That’s where enlisting a buyer’s agent can be a wise move.

What Real Estate Agents Do

Historically, real estate agents work for sellers, not buyers. Agents list sellers’ properties, market the listings, and really sell the homes. When they’re successfully, the earn a commission based upon a percentage of the sale price. The more the buyer pays, the more the agent earns. Agents will do everything that’s legal to sell homes. It’s their job.

For novice home buyers unfamiliar with real estate laws and the numerous problems properties may have, a buyer’s agent can help shed light on the actual pros and cons of different homes.

A buyer’s agent may also help you negotiate a lower price, but watch out—buyer’s agents usually split the commission with the seller’s agent, so they have an interest in a higher selling price too. Like the seller’s agent, your buyer’s agent is going to want to see you buy a home; his or her paycheck depends on it.

Finding a Buyer’s Agent

If you decide you want a buyer’s agent to help you navigate your first home buying experience, start asking friends for referrals to agents they’ve worked with and trust. If that doesn’t work, call up local real estate companies and ask to schedule brief “interviews” with prospective buyer’s agents. Ask prospective agents how much experience they have working as buyer’s agents and working with the kinds of properties you’re interested in.

Whatever you do, make sure you choose an agent that you like and trust.

When my wife bought her first condo a few years back, she jumped into the market without a buyer’s agent. Soon, a seller’s agent for a property that didn’t interest her latched on and got my wife to use him as her buyer’s agent. The agent did a lackluster job, but probably collected a sweet commission check for it anyway. My wife was probably better off with him as her buyer’s agent, but could have been even better served had she hand-selected the agent she worked with.

On the hunt for a new home? Check out 10 Tips for Hassle Free House Hunting and don’t forget to get mortgage pre-approval before you start your search.

Related posts:

1. 10 Tips for Hassle Free House Hunting
2. A Buyer's Market…Or Not
3. $6,500 Home Buyer Tax Credit

Having this letter from a mortgage lender in advance can save you from major disappointment if you find your perfect home, make an offer, and then find you the bank has denied your mortgage application.

Pre-qualification and pre-approval is simply when a lender takes a fast look at your credit and decides, preliminarily, that you’re eligible for a mortgage. Although this does not guarantee your ability to get any mortgage, it does give you an upper hand when negotiating with sellers.

So, what’s the difference between pre-qualification and pre-approval?

Pre-qualification is the less formal of the two. Basically, a lender tells you how much of a mortgage they would be willing to lend you based upon information that you provide. The lender doesn’t check your credit or vet your income and assets; they just reply upon what you tell them. Banks don’t charge for pre-qualification, and there’s no reason you have to go with a bank that gives you pre-qualification. At the same time, there’s no guarantee you’ll get the loan based upon pre qualification. If the lender later discovers that your credit is less stellar than what you said it was, the loan may fall through.

When you obtain pre-approval, the bank checks your credit, employment history, assets, and other debts. Most reputable lenders don’t charge for pre-approval, either, although some do—so be sure to ask. Again, you’re not under any obligation to go with a lender that provides you with pre-approval, although if their rates look good, some of your work applying for the mortgage is already done for you.

I recommend you get mortgage pre-approval online with leading mortgage comparison site LendingTree. It’s fast and free, and will give you a sense of the kinds of mortgages you’ll be approved for in minutes.

Related posts:

1. How to Prepare to Buy Your First Home
2. Beware Loan Modification Scams
3. Mortgage Application Declined? Here’s What to Do

1. Make a plan. What do you want and need from your first home? Take a moment to write it down. This is especially important if you’re shopping with a partner or spouse. You’ll save a time and aggravation if you agree on what’s most important in your house before you hit the streets shopping. Is it all about the location? Do you want an impeccably-kept modern home or would you consider a fixer-upper? The more factors you identify as important early-on, the faster you’ll be able to hone in on properties that meet your needs.

2. Set a budget. This goes hand in hand with tip number one. How much house can you afford? If you’re not sure, I’ve written on this subject in How Much House Can You Afford and What Percentage of Your Income can You Afford on Mortgage Payments? Do you want to stretch and buy more home than you need so you can grow into it, or do you hope to pay off your mortgage quickly by buying a home you can afford with a 15-year fixed mortgage?

Ultimately, your income, savings, and local real estate market will determine your viable housing budget. Once you set it, commit to it. Your real estate agent will inevitably show you properties that exceed your budget “just for comparison”. You need to prepare to be firm and stick with a house you can afford.

3. Get mortgage pre-approval. You don’t want to find your dream home only to let it slip through your fingers because you can’t qualify for a mortgage at the last minute. Getting mortgage pre-approval is a vital first step in the home buying process because it gives you an idea of what mortgages you can qualify for and how much they will cost, plus it lets sellers know that you’re serious about buying so they will be more likely to take your offer. Learn more about getting competing mortgage quotes online.

4. Consider the location. There’s a reason for that old line “location, location, location.” Where you buy your first home will not only determine how much you pay, but the location will also shape your life for as long as you live in the home. Will you be having kids in this home? How are the schools? What will your commute be like? If you change jobs, what is the employment market like within commuting distance from the location? Before you start looking at properties, focus only on areas where you could see yourself living for years to come.

5. Do some research. Thanks to the Internet, home buyers today no longer need to rely on their realtors to suggest listings to look at. You can start searching available properties and real estate values in your target areas from the comfort of your own home. For example: Search for listings in your areas with ZipRealty now.

6. Create your own house hunting checklist. Once you start touring properties with a real estate agent, house hunting can be fast and furious. You’ll see so many properties you won’t be able to keep them straight, and there will often be pressure from sellers and their agents to make a quick offer. Create a checklist that you can use for each property you view. Include your criteria and include a space for notes. This way, at the end of the day, you can take your checklists home and compare properties easily.

7. Find a buyer’s real estate agent you trust. You don’t have to work with a buyer’s real estate agent; you can simply visit listings yourself and deal directly with the seller’s agent. First-time buyers, however, are probably wise to enlist a buyer’s agent. (Usually, having a buyer’s agent on your side won’t increase the commission you pay, it will be split with the seller’s agent. But be sure to ask how your agent is paid, anyway).

Ask friends and family for recommendations for real estate agents they’ve worked with. If that won’t work, call a few local agencies and ask to set up “interviews” with a few prospective agents. Explain to the agents that you’re shopping around, and choose an agent you’re comfortable with and that seems to be knowledgeable about the market and price-level in which you’re shopping.

8. Get comfortable and relaxed. Prepare for all-day house hunting sessions by dressing comfortably and bringing water and snacks. You never know how many properties your agent may want to show you or how long you’ll have to wait for a seller’s agent to let you into a property. Be ready!

9. Be prepared make an offer. A lot of people shop for houses before their truly ready to buy a home. Maybe the timing isn’t right yet, maybe they don’t have enough saved up for a down payment, or maybe their credit needs work. Before you go out house hunting, ask yourself: Could you buy a house today? Using this gut-check will save you a lot of agony (and possibly money) if you make an offer but don’t close because, for one reason or another, you weren’t ready.

10. Have fun! Buying your first home is a major milestone and has the potential to be a lot of fun! Just remember to relax and take things one step at a time. Everything may not go perfectly smoothly, but if you’re committed to buying a home and are working with a reliable agent, you’ll eventually find yourself in an awesome new pad!

Resources

• Get Mortgage Pre-Approval Online
• Search Properties in Your Area with ZipRealty

Related posts:

1. What a Buyer’s Agent Can Do For You
2. 5 Critical Things to Remember When Buying Your First Home
3. How Much House Can You Afford?

There are only so many reasons your mortgage application may be declined. The most common are:

• Your credit score is too low.
• Your monthly debt payments are too high compared to your income.
• You’re applying for “too much house” for your income and assets.

Lenders and brokers want to approve your mortgage (after all, approving mortgages is how they get paid). So if you don’t qualify initially, they should be happy to explain to you why your application was declined. If they don’t offer this information immediately, ask them. Let’s take a closer look at what each reason means and what you can do about it.

Low Credit Score

Because mortgages are secured by property (the house), even people with shaky credit scores sometimes get approved for a mortgage. The lower your credit score, however, the more interest you’ll pay. Therefore, it’s best to get your credit score as high as you can before taking on a home loan. Still, some lenders burned by issuing too many “sub-prime” mortgages have significantly increased the minimum credit requirements needed to qualify for their loans. So it’s possible to be denied a mortgage on the basis of credit score alone.

The primary factors in a low credit score, in order of importance, are:

• Late payments
• Too much debt
• Too little credit history
• Too many inquiries

Late Payments: Paying your bills on time is the single most important thing you can do for your credit score. One 30-day late payment can drop your score by up to 100 points, and it can take one or two years of on-time payments for your score to recover. Miss more than one payment, or fall 60 or 90 days behind, and your score will really plunge. If your mortgage application is turned down for a low credit score due to missed payments, it’s the easiest fix (pay on time going forward). Unfortunately, it’s the fix that will also take the longest. You may just have to wait between 12 and 24 months before applying again.

Too Much Debt: The second most important part of your score is how much debt you have compared to your total credit limits. For example, if you have $5,000 of credit card debt and a total $10,000 credit limit, you’re using 50 percent of your available credit, which may be too high. Try to get this ratio under 20 percent by paying down debt, even if it means taking cash from your savings for a down payment.

Too Little History: The longer your credit file has been open, the higher your score goes. If you’ve only had credit for a year or two, you may need to wait another year or two before getting a mortgage. Similarly, if you only have one or two credit cards on your report, you may need to take out a fixed installment loan (like a car loan or a debt consolidation personal loan), to improve your “credit mix”. Being anti-debt, I hate to recommend taking out credit…but you can always get the loan and pay it off in full within a few months. It will still help your credit. Finally, if you no credit history at all, you have your work cut out for you. Start with a credit card and work on paying on time for one to two years.

Too Many Inquiries: Mortgage lenders don’t want to see that you’ve been trying to apply for any credit you can get in the last few months; it makes them nervous you’ll get a bunch of credit and then fail to make payments. So it’s a good idea to hold off on applying for credit cards or other credit six to 12 months before applying for a mortgage.

If your mortgage application was declined because of a low credit score, spend $15 a month or so for a few months on a credit monitoring service to track your progress. Your lender may even be able to tell you the score you need to qualify, so when you reach it, you know it’s time to reapply for your mortgage.

Debt-to-Income Ratio

Even if you have stellar credit, a mortgage lender may turn you down for having a debt-income-ratio that’s too high. This is similar, but not exactly the same, as your credit utilization ratio that figures into your credit score. Your debt-to-income ratio (DTI) all comes down to how much you spend every month on minimum debt payments and how much you earn.

This is where auto loans, or other loans that have a high fixed monthly payment, can hurt. If you earn $3,000 a month and have a $400 a month car payment and two credit cards with a total minimum payment of $100, your DTI is about 17 percent. That’s not terrible; trouble is mortgage lenders add your future mortgage payment on top of that. If you’re looking at a $1,000-a-month mortgage, your DTI just jumped to 50 percent, which is too high. Most lenders want to see this ratio under 45 percent—for the sake of your own financial security, it’s better to get it even lower. Read more about what percentage of your income you can spend on a mortgage.

“Too Much House”

The last big reason your mortgage application could be declined is that you’re simply trying to finance too much for your income and assets. This can be solved in two very straightforward ways:

• Shop for less expensive homes
• Increase your equity (down payment)

If your lender tells you that you’re simply asking for too much, you can always reduce your asking amount. For some—such as those in pricey real estate markets like Northern California or the Northeast Coordinator—that may not be an option. Fortunately, there’s another solution: save more! I recommend home buyers put at least 20 percent down. It gives you equity in your home right off the bat and helps you avoid private mortgage insurance (PMI), which unnecessarily increases your monthly housing payment.

If your mortgage application has been declined, take heart: you’re not alone, and with some work, you can ready your finances to buy a home. Looking to get pre-approved for the first time or a second time? Get mortgage pre-approval online from several lenders at once.

Related posts:

1. What Percentage of Income Can You Afford for Mortgage Payments?
2. Are You Ready to Buy a Home? An Easy Way to Check
3. His Credit’s Good, Hers is Bad: Can You Get a Mortgage Anyway?

Isakson’s proposed legislation would make available up to a $15,000 tax credit for any home buyer of any home over the next year. It would also remove the income limits that currently apply to the first-time home buyer tax credit. In a press release on the Senator’s Website, he says:

“If we do this, home values will return, unemployment will go down, our economy will turn, and consumer price confidence will go up. I would submit it is a part of the main solution we need to take an economy that is on the bottom and move it back toward equilibrium and prosperity for America.”

Another bill recently introduced would extend the $8,000 first-time home buyer tax credit for another six months. If this bill passes, first-time home buyers would have more time to claim the existing credit, although the rules would remain the same. (The tax credit would only apply to first-time home buyers and income caps would remain in place).

I predict that the first-time home buyer tax credit will be extended but Congress debates expanding the program to a $15,000 home buyer tax credit for a long time. If the expansion passes, I would bet it will include limitations (or even be for less than $15,000). What do you think? Is expanding the credit a good idea, or has the first-time home buyer tax credit run its course?

PS: If you’re looking for answers on the existing tax credit, visit my FAQ on the first-time home buyer tax credit or brief guide on how to buy your first home.

Related posts:

1. $6,500 Home Buyer Tax Credit
2. $8,000 First-Time Home Buyer Tax Credit
3. First-time Home Buyer Tax Credit Provides up to $7,500

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property-taxes and all housing-related insurance (including PMI). As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

In an article on new rules for first-time home buyers , the New York Times reported:

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

Let’s remember, that even in today’s post-mortgage crisis world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and home insurance payments “conservative”. I’d call it average.

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-home income.

Your mortgage payment should not be more than 25% of your take-home pay and you should get a 15-year or less fixed-rate mortgage…Now, you can probably qualify for a much larger loan than what 25% of your take-home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars and education.

Notice that Ramsey says 25 percent of your take-home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world most buyers take 30-year mortgages.

Not everybody is as debt-adverse as Ramsey, but I think you have to acknowledge he has a point: The more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

When you obtain mortgage pre-approval, lenders will likely approve you for a loan that would require housing payments closer to 30 or 35 percent of your pretax income. Don’t just assume “if the bank approved it; I can afford it”. That’s rarely the case.

Related posts:

1. How Much House Can You Afford?
2. Save Big on Your Home Loan with Bi-Weekly Mortgage Payments
3. How to Find the Best Mortgage

Refinancing is just a fancy word for trading an existing mortgage for a new one with different terms. There are a number of reasons somebody might want to refinance, including:

• To get a lower interest rate.
• To change the repayment term (either longer or shorter)
• To lower a monthly payment
• To change the type of mortgage (adjustable or fixed rate)
• To take cash out of home equity
• To eliminate private mortgage insurance (PMI)

Before you think about refinancing for any of the above reasons, however, there are several things you need to know.

1. It Costs Money to Refinance

Most people say, “If I interest rates have dropped since I got my mortgage, why wouldn’t I refinance?” The answer? If you’re not going to be in the house long enough to recoup the refinance closing costs. Answer? It costs money to refinance a mortgage. These “closing costs” come in a variety of fees and mortgage points and may be paid for either with cash or by being added to the principal of the new mortgage. Either way, you pay them. And either way, they subtract from the money you will be saving by getting a lower interest rate.

As an example, if you owe approximately $148,500 on a $150,000 mortgage at 8% interest and want to refinance at 7.5% but there are $2,500 in closing costs, it will take you 41 months to recoup those costs. Of course, even a 0.5% rate reduction will save you thousands over the course of the mortgage, but if you were to sell the house in less than three and a half years, you’d lose money by refinancing.

The lower the rate, the faster you can recoup your investment in the refinancing costs. For example, if you dropped your rate from 8% to 6%, it’d take just 12 months to recoup the closing costs.

2. Lower Monthly Payments May Equal Lots More Interest

Especially in these challenging economic times, refinancing is an attractive option for creditworthy homeowners who face reduced incomes and want to lower their mortgage payment. Although getting a lower interest rate will reduce your payment, extending the term of the mortgage also achieves this goal.

Most mortgage refinances are done at standard mortgage terms (15 and 30 years being the most common). That means if you’ve owned your home for three years and have a 30-year mortgage, when you refinance, you’ll have a new 30-year repayment schedule, not another 27-year loan.

For homeowners that have been in their homes even longer, refinancing to a new 30-year mortgage can substantially lower their monthly payment. The problem is they’ll end up paying tens of thousands more in interest because they’re extending the number of years they’re paying off the mortgage.

Obviously, refinancing with a longer term is a better option than foreclosure; but it should be seen as a short-term solution. Hopefully, you can increase your income and begin making larger mortgage payments or make a plan to sell the home and get into something more affordable.

3. “Cash-Outs” May Cost You

So-called “cash-out” refinances, when a borrower refinances a mortgage and takes a portion of the home equity out in cash were once an immensely popular way of funding everything to home improvements to kids’ educations. As the real estate and mortgage markets have stumbled, however, cash-out refinances are not only harder to do, they’re less and less attractive.

In order to even consider a cash-out refinance, you need to have significant equity in your home. Generally, you can cash out your equity minus twenty percent. Take any more than that, and you’ll be back to paying private mortgage insurance (PMI), which banks require when you have less than twenty percent equity in the home. Go back to PMI, and that refinance is one expensive loan.

Cash outs are risky for a number of reasons. For one, you’re essentially just piling on “bad” debt and hiding it in your mortgage. Second, if you’re cashing out for home improvements that you expect to recoup in the sale of your home, you’re gambling that the market will go up and your improvements will work to increase the home’s resale value. Treat your house as your home, not an investment.

The one good use for a cash out refinance I might believe in is to use the equity to purchase (hopefully outright) a rental property that will generate income that will help pay the mortgage. A rental property that generates income is an investment. Still risky? You bet. But it’s a risk with an appropriate potential reward.

4. Shop for a Refi Until You Drop

The last big thing to know about refinancing is that every bank is going to price and structure refinance offers differently. These days, you’re going to need spectacular credit to even be considered for a refinancing offer. And even if you’ve got it, banks may play hardball.

Before you look into refinancing, know what you want to get out of it, and know where your break even point is. It doesn’t make sense to refinance if it’s not going to either save you money or save your house!

If you think you can get a lower rate and stay in the home to realize the savings, then go for it. If you want to lower your payment by changing your mortgage term, proceed carefully. If you’re trying to get cash out of your home, definitely stop and think. Still thinking about it? Shopping for refinancing doesn’t have to be difficult, and you can even get mortgage refinance quotes online from loan aggregation sites that will help you compare and choose banks to deal with.

What About You? Have you refinanced a mortgage? Why’d you do it? Did it work like you wanted it to? What did you learn? Please share your story in a comment.

Related posts:

1. How to Find the Best Mortgage
2. Mortgage Rates Briefly Explained
3. First Time Home Buyer’s Mortgage Checklist

All mortgages are not created equal. In fact, there are as many varieties of and options on mortgages that they mind as well be cars. If you don’t know what you’re doing when you’re shopping for a mortgage, you can expect loan officers to try to take advantage of you. (Mortgage brokers and loan officers, like car salesmen, work for big commissions).

First Things First

You’ll never find the best mortgage for you if you don’t know where you stand. You must enter the mortgage market knowing two things:

• Your creditworthiness and how it will affect your interest rate, and
• How much home you can afford.

In today’s recovering credit market, you should have a credit score of at least 700 (check yours now). You may be able to get a mortgage with a lower score, but you’ll pay higher interest that will amount to tens of thousands of dollars more over the life of the loan. If you’re buying a home with your spouse or partner, lenders may look at the lower of the two credit scores. (For more, read: His Credit’s Good, Hers is Bad: Can You Get a Mortgage Anyway?)

As a rule of thumb, you can afford a home if the total monthly housing payment (including mortgage, taxes, and insurance) is no more than 28% of your gross monthly income (before taxes). I recommend you keep it under 25%. And remember, that’s how much you can afford. Just because that’s the maximum you can afford doesn’t mean it’s smart to spend it all (although mortgage officers, looking for a bigger check, may tell you otherwise). You’ll be able to afford more house if you have at least 20% saved for a down payment. Anything less than a 20% down payment, and you’ll need to pay private mortgage insurance (PMI), which will reduce the amount of your monthly housing payment that actually goes towards the house.

Types of Mortgages

Got your credit and housing budget in check? Next it’s time to decide what kind of mortgage is right for you: Fixed rate, adjustable rate, or interest only. (Hint: Stick with the first one. All the best mortgages are fixed rate.) Fixed rate mortgages lock you in to the current interest rate for the life of the loan. Since rates are low right now, this is good. You’ll know that your interest rate and, subsequently, your monthly payment, will never go up. When interest rates are higher, you risk rates going down, but you can always refinance if that happens. Fixed rate mortgages usually come in 30- or 15-year terms, although other terms may be available. Lenders will most likely recommend a 30-year term because it lets you afford more, but you’ll pay far more interest. Dave Ramsey recommends his finance-savvy flock only take on 15-year fixed rate mortgages, period, and I agree.

An adjustable rate mortgage (ARM) offers a low introductory interest rate (giving you low initial payments) but will then adjust to a higher rate (and higher payment) after so many years. ARMs get a lot of home buyers into trouble because they can afford the initial payment but not the payment after the rate adjusts. Unless you put a large amount down and are absolutely sure you will sell the home before the rate adjusts, stay away from ARMs. Interest only mortgages allow you to make monthly payments that only pay down interest and not the principal of the loan (for a set period of time). This is bad because you never build equity in your home; you’re essentially gambling that the home’s value will go up.

Mortgage Interest Rates, Points, and Prepayment Penalties

Most mortgages carry a simple annual interest rate like any other loan. Generally, the better your credit and the shorter the term, the lower your rate will be. Some mortgages, however, also charge “points”. There are two kinds of points: Discount points (more common) and origination points (less common). Discount points are simply interest charges that are prepaid at the closing (rather than paid monthly as you pay down the loan). Generally, paying for points reduces the interest rate by a certain amount. For example, a half a point on a $200,000 is equal to 0.5% prepaid interest, or $1,000. Two points on a $350,000 mortgage would be $7,000. Either the buyer or the seller can pay the discount points, and the amount is tax-deductible. Although their may be some circumstances in which you’ll want to pay discount points (for one, if you know you’ll stay in the home for 20 or 30 years), you’ll want to stay far away from origination points. Origination points basically cover costs of obtaining the loan (like a fee). Origination points don’t provide any benefits and are not tax deductible.

A final word about mortgage basics: Check your mortgage for prepayment penalties. A good mortgage should not charge you anything additional for paying down the principal of the loan faster (i.e., making additional payments).

Are you ready to go shopping for the best mortgage for you? Always get more than one quote. A site like LendingTree can help by consolidating several mortgage offers in one place, but it will also pay to visit one or two local banks or credit unions and meet with real-live loan officers. The key to finding a fair mortgage is doing your homework. You probably wouldn’t buy the first house you walk into without seeing any others; you shouldn’t take the first mortgage you’re offered, either!

Related posts:

1. Mortgage Rates Briefly Explained
2. Your First Mortgage: How to Apply and Get Approved
3. Mortgage Application Declined? Here’s What to Do

If you’re considering buying your first home this year, remember that if you qualify for this tax credit, your new home may as well have an “$8,000 off!” sticker hanging on it. To continue to help prospective home buyers navigate this opportunity, I recently completed a page featuring first time home buyer tax credit frequently asked questions. I invite you to check it out.

If you have other questions, leave them in a comment on this post or my original posts on the $8,000 tax credit and how to claim the tax credit.

Related posts:

1. $15,000 Home Buyer Tax Credit?
2. $6,500 Home Buyer Tax Credit
3. $8,000 First-Time Home Buyer Tax Credit