How
much can you afford?
Morris Digital Works Wire Service
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.
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