I'll devote the next few blogs to some common questions from 1st time homebuyers. Some things can be a little confusing at first, but don't feel like you have to know everything at first. Your realtor or lender should be with you every step of the way and help you understand any topics that you don't get.

1) How are interest rates determined?

Rates fluctuate based on a few factors...inflation, economic growth, and Federal Reserve policy. Inflation generally has the largest influence on interest rates. A modest rate of inflation usually leads to lower rates, while rising inflation usually causes rates to increase. The Federal Reserve implements policies to keep inflation and interest rates low and stable.

2) What's an adjustable rate mortgage?

An "ARM" offers a lower initial interest rate than most fixed rate loans. Unlike a fixed rate, an ARM loan's interest rate can change periodically, usually tied to an index, which makes the payment go up or down. Many people who chose ARM's do so believing their income will increase, thereby being able to handle a bigger payment later, or if they only plan on being in the home less than 5 years. The rate and payment are fixed for a period of time...1, 3. 5. or 7 years, then can change every year after that.

3) What are points?

They're a form of interest and is equal to one percent of the loan amount. They're paid at closing in exchange for a lower interest rate. It may make sense to pay points depending on how long you plan on staying at the residence.

4) What are closing costs?

They are fees associated with the home loan. They can change depending on the state or the lender. Typical fees are as follows: appraisal fee, credit report fee, closing fee, survey fee, tax service fee, title insurance fee, flood certification fee, mailing fee. Most of these fees are fixed though some lenders may pay some of these costs so it is best to shop around. State and local taxes need to be paid along with recording fees. Points, loan processing fees, and document preparation fees are charged by the lender. You may also pay prepaid interest, establish an escrow account and pay mortgage insurance if necessary.

5) What is mortgage insurance?

Mortgage insurance is required when you purchase a home with a down payment of less than 20%. This protects the lender in case of default. It is usually included in your monthly payment, but you may also be able to cancel it when your loan balance has been reduced below 75-80% of the property value.