A home is typically the biggest financial purchase a person or family ever makes. Information, planning, and self-discipline are your best assurance of keeping costs under control.

Your Assets
List available cash such as checking and savings accounts or certificates of deposit near maturity. Will additional cash accumulate during construction? Homebuyers typically need cash for loan application feels, the down payment, closing fees, and move-in expenses. Consider assets you can turn into cash, such as the equity in a home you already own. Other assets might include a cash gift from a family member, an inheritance, maturing bonds, or the cash value of an insurance policy. If you are a first-time buyer, you may also use an IRA or 401(K) loan but consult a tax professional before doing so.

Basic Financing Terminology:

Prequalifying
Smart buyers today request an informal review of their financial positions to determine how much money they can borrow. While prequalifying does not obligate you and a particular lender to do business together, it can establish your budget, identify financial details that might interfere with your plans (such as an error on your credit report), and help you compare loan programs.

Many lenders use computer programs to match your financial and credit data to the requirements of various loan programs and identify those that fit your circumstances. The amount you can borrow is based on factors such as your assets, how much you owe, your income, and the length and stability of your employment.

Loan Application
Assemble the required financial documents and information prior to your application. Your lender can provide a list of needed items. Read any documents and ask any questions before you sign them. You should receive a copy of each document you are asked to sign. Expect to pay for a credit report and an appraisal when you submit the application.

Downpayment
The downpayment is the difference between the price of the home and the amount of the loan you obtain. The deposit you give to the builder and items you pay for during construction may count toward the downpayment.

Closing Costs
Charges associated with the transfer of ownership make up your closing costs. They are often estimated at 2 to 3 percent of the loan amount but can vary from state to state.

Fixed-Rate Mortgage
With a fixed-rate mortgage the interest rate stays the same through the term of the loan.

Adjustable Rate Mortgage
If the interest rate on a mortgage can be changed, the mortgage is an adjustable rate mortgage (ARM). ARMs are easier to qualify for because their initial low interest rate results in a lower payment. Based on the terms of the loan program, the rate can be adjusted up (or down) over the term of the loan-usually in 1-year increments.

Balloon Mortgage
Some lenders offer loans that mature before the loan is fully amortized.

Origination Fee
Lenders typically charge an origination fee. This fee pays the lender for the services of the loan officer and staff who process your loan application.

Discount Points
These points are a one-time charge sometimes levied by the lender. You may use points to achieve a lower permanent interest rate because you pay some of the interest in a lump sum up-front at the closing.

Principal, Interest, Taxes and Insurance (PITI)
Mortgage payments are made up of principal, interest, taxes, and insurance. The principal and interest are calculated based on loan amount, interest rate, and term of the loan. In the early years most of your monthly payment applies to interest, and it reduces the loan principal only slightly. A portion of your mortgage payment may be set aside in an escrow account to pay your local property taxes and your homeowner's hazard insurance. This insurance usually covers theft, fire, wind, hail, and other catastrophic damage to the structure.

FHA Insured Loans
The Federal Housing Administration does not lend money; it insures mortgage loans. Some FHA programs require as little as 3 percent down, although maximum loan amounts limit the loan amount available by area.

VA Guaranteed Loans
Veteran Administration loans are available to qualifying veterans of military service. VA loans are guaranteed rather than insured. The VA guarantees 25 to 50 percent of the loan and thereby protects the lender from loss.

Conventional
These loans are neither FHA insured nor VA guaranteed. Most conventional lenders prefer a 10 to 20 percent or greater downpayment, but some require as little as 3 percent down.

Good-Faith Estimate
The Good-Fait Estimate lists the costs you are likely to incur at the closing of your new home.

Truth-in-Lending Disclosure
The Truth-in-Lending Disclosure shows the cost of your financing as a percentage and as a dollar amount. This form also tells you whether prepayment penalties apply and shows the charge for a late payment.

Credit Report and Verifications
Your lender obtains your credit report at the time of application and may update your credit report prior to closing it if more than 30 days have passed. The lender also verifies information on the application. You will be asked to sign verification forms covering employment, deposits, and your current mortgage company or landlord.

Appraisal
Costs vary for appraisals, but $250 to $400 is common. The appraiser determines the fair market value your completed home will have.

Loan Lock
The lender promises to provide a loan to you at a quoted (locked) rate. Until you lock your loan rate, the interest rate for your mortgage can increase or decrease.

Loan Approval
At the time of application, your lender estimates the time needed to obtain approval. Add a week to this estimate and expect that some last-minute details will need your attention. The loan approval should be in writing and state clearly (a) that your loan has been approved; (b) the loan amount, type, and rate; (c) the time period for which the loan offered is valid; and (d) any conditions of approval or contingencies, such as closing on the sale of a previous home.

Many people find applying for a mortgage intimidating or frustrating-or both. Completing all forms involved can take time. Keep focused on your goal-that new home for you family.