Many consumers will do this before signing a contract for a new home (right way) while others will find a home then try to find a way to afford it (wrong way).  So whether or not you have a found a home this really is the first step of the home loan process.  Search for mortgage calculators and estimate what your new monthly payment.  Compare different home loan options and interest rates so you can become more familiar with potential mortgage payments.

There are some critical steps in this process that many homebuyers miss.  Most mortgage calculators estimate only your loan payment and do not include such items as mortgage insurance, property taxes and homeowner fees (condo, HOA dues).  It's critical that you ask your real estate agent about the tax rate for the property - the current tax rate.  Many states have homestead laws where the current owner's tax bill is based on a purchase price many years ago and does not accurately reflect your new tax bill.  In fact, almost every listing on the MLS will state the property's current tax bill - not your new tax bill once the property changes ownership.  Call your county's property appraiser office or visit their website for more information on current property tax rates.

Thinking about the past is probably one of the most grounding questions a consumer will ever hear when thinking about a new home loan.  First you think 5 years is not a long time but now think of everything you have done.  Odds are there have been quite a few changes in your life.  With this perspective you can now start considering home loan options.

Suddenly, a one year fixed rate doesn't sound so appealing does it?

Now that you have this perspective ask yourself the following questions?

             Where do you expect to be 5 years from now - 10 years from now?
             Do you see a family in the future or are you still searching?
             Do you foresee your income rising or decreasing?
             How risk averse are you to changes in the interest rate marketplace?
             How much extra money will you spend to furnish the home?

The only person who can answer these questions is you so take your time to incorporate these in your decision about home financing.

Consumers have a wealth of home loan options in today's marketplace.  If you honestly answered the questions in step 2 above then congratulations - you are much farther ahead in your search for a home loan than most consumers.  If you plan to live in your home for a long time then consider a low interest rate over a long period of time.  Generally try to match up the known amount of time you will be in your home with a fixed interest rate for the same period of time.  Many lenders offer loan programs where the interest rate is fixed for the entire term of the loan but you will have an option to make interest only payments without ever incurring negative amortization.  These loans are probably some of the most attractive products in the marketplace - but only to homeowners who fully understand them and have enough self discipline to take advantage of the interest only payment options upon times when needed - not just so they can realize some extra spending money.