|
How Much Home Can I Afford?
Whether you're an experienced homebuyer or this
is your first purchase, you'll want to go through the process
of finding out how much home you can afford before you start
touring open houses or model homes. By getting pre-qualified,
and eventually pre-approved, you'll be helping yourself find
the homes in the price range you can afford and, ultimately,
find your dream home sooner.
Three elements are crucial to the purchase of
a home: the down payment, closing costs and the mortgage.
Down payment -- The amount of down payment you'll need depends
on how the transaction is structured and the type of financing
acquired. Typically, conventional lenders will require a 20
percent down payment, although in some cases, loans with down
payments as low as 5 or 10 percent may be obtained. If a down
payment of less than 20 percent is made, the buyer will likely
have to pay private mortgage insurance (PMI), which guarantees
that the lender will be repaid in case of default.
Single-family mortgages insured by the Federal Housing Administration
(FHA) have more lenient down payment requirements than most
conventional loans. FHA financing usually requires down payments
of less than five percent.
Closing costs -- Closing costs, paid at settlement, vary considerably.
However, the most common costs include: discount points (one
point equals one percent of the loan amount), origination fees,
title insurance, escrow fees, attorney fees, termite report,
recording fees, appraisal fees, document preparation fees, and
a loan underwriting fee.
Loan Qualification -- Determining how large a mortgage you
qualify for is based mainly on the interest rate offered and
your income and debt. The higher the interest rate, the higher
the monthly payment. Lenders generally recommend that your monthly
payment not exceed 28 percent of your gross income. Besides
checking your income, the lender will also require a credit
report. |
