Buying a home can reduce tax payables and taxable income in the long run. How? Availing of mortgage deals consequently affects tax computation. Property taxes also contribute to tax adjustments. Furthermore, once you decide to sell your home, profit from the sale is majority, if not completely, tax-free.

Purchasing a home can be a very lucrative investment. Residential properties are among the largest assets held on to by individuals. Not only does its ownership pose a high probability of real estate value growth, it can also serve as high ticket collateral for significantly large credit loans. Therefore, buying a home can also increase your borrowing strength.

Once you have convinced yourself in purchasing a home, the next question is whether you can actually afford one. In this debate, there are several factors to evaluate.

First and foremost is gross income. By gross, we mean all money earned prior to tax deductions plus all other sources of income such as bonuses, commissions and even overtime pay. This information will help calculate the amount of mortgage that you can afford against your projected personal cash flow.

Second is your current financial obligation situation. Other existing loans and debts, such as car loans, student loans and other mortgages are summed together with your basic living expenses to determine monthly expense requirements versus your gross income.

Historical credit behavior is the third consideration. Your capability to settle bill payments on time and in full within the required period of time affects the approval ratings for home loans. Dissatisfactory conduct in this area translates to very limited options in securing financial assistance.

Lastly, your employment history will help determine sustainability of income, thereby conveying this into your capability to pay home loans in an appropriate manner.

Now, to assist in selecting the type of financing to help you in your home purchase, here are three basic financial terms you need to understand:

1.Fixed Rate Mortgages - as the name implies, a fixed interest rate is applied over a period of time. Depending on the term of the mortgage plan, whether it is a 15-year, 30-year or even a 40-year term, a pre-determined interest rate is agreed on. The longer the term, the higher the total interest to be settled, simple as that.

2.Adjustable Rate Mortgages - here, interest rate is only fixed for an initial period then shifts to a moving rate depending on an agreed index. If done correctly, overall lower interest rates can be enjoyed in the long run.

3.Points - mortgage cost is computed between interest rate and points. 1% of the mortgage amount is equal to a point. The more points you pay, the lower interest rate you will enjoy.

Just a piece of advice: It wouldn't hurt to seek the help of an investment professional. Remember, purchasing a home is among the largest asset-investment done by any individual.