|What Can You Afford?|
Government-backed loans require 5 percent or less as a down payment. Loans insured by the Federal Housing Administration (FHA) and the Veterans Administration (VA) are particularly useful to first-time buyers.
The thing to remember is that the higher your down payment, the lower the risk you pose for the lender and therefore the lender may be able to offer you better loan terms. The higher the down payment the lower your interest expense on the mortgage will be.
Qualifying For A Loan
Income - gross monthly income as well as employment history, education, and any secondary income such as bonuses, dividends, and child support. The lender may require a letter from your employer, W-2 forms, or, if you are self-employed, recent tax returns.
A REALTOR® can help you determine what price range and monthly payment you can afford. The monthly payment typically consists of principal, interest, taxes and insurance - PITI, for short. The monthly payment is calculated based on the loan amount, the interest rate, the term of the loan, the costs of any insurance, and taxes. You can get an idea of what your payment will be by using this mortgage calculator.
You will pay for some fees and the seller will pay for others. The costs will vary depending on each transaction. Most lenders will provide you with a good faith estimate of such costs. Your REALTOR® can also help you estimate what those costs might be.
One item at closing that is often confusing to first-time buyers is points. Points are an additional amount a lender charges up front for the loan. Points are interest collected in advance. One point is 1 percent of the loan amount. Three points on a $70,000 loan amount, for example will be $2,100. By collecting points (interest) in advance, the lender actually increases his rate of return on the loan. For example, if market interest rates are at 8.5% for a 30-year loan with no points a lender might offer you an alternative loan at 8% if you pay some points.