Buying a home remains the great American dream. Home ownership rates have been exploding in recent years, spurred on by the historically low interest rates in the home mortgage market. Home prices have been rising at far faster than inflation, especially in major urban areas such as San Francisco, San Diego and Chicago. This means that not only can that home you?ve always wanted put a roof over your head, but it can provide you with a great investment as well. For people new to the mortgage market, buying their first home starts with finding the best home loans.

Instead of rushing out to a Realtor to start checking out houses, it’s important to first find out what your price range is. This can save you a lot of time in the end since you won’t be wondering if you can afford the places you’re looking at. You’ll already know exactly what you can afford and even have an idea of your monthly payments before you look at a house. It’s a prudent decision to familiarize yourself with the mortgage market before you go shopping for a loan, since a home purchase is the largest single investment decision for most Americans.

To begin your home mortgage search, talk to credit unions, banks, and brokers in your area. You’re looking for someone to hold your hand through the process, but you also want a decent rate with low fees, so make sure to shop around.

When you’re looking at rates, you will be shown two different types - variable/adjustable rate (ARM) and fixed rate. The ARM rate is usually shown as a promotion at a cheap rate, sometimes called a “teaser.” After the fixed period of the ARM is up, you can expect rates to rise significantly if you get into one of these adjustable rate mortgages.

When you look at an ARM, you should focus on the amount of time before the rate adjusts, and what the new ‘adjusted’ interest rate cap is. The rate adjustment usually takes place anytime between one month (for promotional APRs) and ten years. The rate cap is the maximum interest rate you might have after an adjustment (if rates skyrocket). You will find that most ARMs will have a ‘prime-plus’ number, where the new interest rate becomes the federal prime rate, plus a certain percent (based on your credit score, loan amount, and many other factors). Calculate your mortgage payment using the cap rate, and make sure you can afford that monthly payment if worst comes to worst.

Currently, interest rates are very low because of the recession, and by getting into and adjustable rate right now, you’re setting yourself up to more than likely be paying a higher rate later when the fed raises the prime rate. Since mortgage companies know this, they’re offering even lower rates to give you an incentive to get into an ARM. If the rate is set to adjust after, say, 5 years, but you only plan on staying in that house for 2 or 3, it might be an excellent idea to take advantage of that rate, then pay off the mortgage when you sell your home before the intro rate expires.

Fixed rate mortgages are less complicated than ARMs because you know exactly what your payment is for the life of the mortgage. The fixed rate, as it implies, locks in your interest rate for the entire duration of the loan, which is great for current economic times with low interest. This type of mortgage protects you if interest rates go up, and if interest rates fall, you’ll have the option to refinance at the lower rate.

The length of the term on your mortgage can greatly affect the total amount that you pay over the course of the loan term. A shorter, 15-year mortgage has much less compound interest tacked on, so the payments won’t actually double that of a 30-year mortgage. 15-year mortgages can be surprisingly affordable, but if your income can vary from month to month, and it might be a stretch, go for the longer term. With the 30-year mortgage, you can always make additional principal payments during good months to help pay off the loan quicker - effectively racking up less in interest.

Whatever type of home loan you decide on, the most important thing is to take that step which transforms you from a mere renter to a home owner and builder of equity. There are a great many home loans out there, but once you find the right one, you will find the rewards of home ownership well worth the time and effort put forth.

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