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Rates as
Low as 3.9% |
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Lowest
closing cost Guaranteed |
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 60
Seconds
Approval |
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Low Down Payments
Down
Payment Loans and Gifts
Down
Payment Grant
Qualifying
For Low Down Payments
Down
Payment Assistance
State
Housing Authorities |
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Qualifying For
Low Down Payments
To be considered for a low down payment
loan, you generally
need to have:
. Sufficient income to
support the monthly mortgage payment
. Enough cash to cover the down
payment
. Sufficient cash to cover
normal closing costs and related expenses (explained
below)
. A good credit background
that indicates your payment history or "willingness
to pay"
. Sufficient appraisal
value, which shows the house is at least
equal to the
purchase price
. In some instances, a
cash reserve equivalent to two monthly mortgage payments
Closing costs, or settlement
costs, are paid when
the home buyer and
the seller meet to
exchange the necessary
papers for the house
to be legally transferred.
On the average, closing
costs run approximately
2% to 3% of the house
price. This percentage
may vary, depending
on where you live.
Closing costs include
the loan origination
fee (if not already
paid), points, prepaid
homeowner's insurance,
appraisal fee, lawyer's
fee, recording fee,
title search and insurance,
tax adjustments, agent
commissions, mortgage
insurance (if you are
putting less than 20%
down) and other expenses.
Your mortgage professional
will give you a more
exact estimate of your
closing costs.
Points are finance
charges that are calculated
at closing. Each point
equals 1% of the loan
amount. For example,
2 points on a $100,000
loan equals $2,000.
Companies may charge
1, 2 or 3 points in
up-front costs in addition
to the down payment.
The more points you
pay, the lower your
interest rate will
be. In some cases,
you may be able to
finance the points.
So How Much
of a Mortgage Can You
Afford?
There are two basic
formulas commonly used
to determine how much
of a mortgage you can
reasonably afford.
These formulas are
called qualifying ratios
because they estimate
the amount of money
you should spend on
mortgage payments in
relation to your income
and other expenses.
It is important to
remember that the following
ratios may vary and
each application is
handled on an individual
basis, so the guidelines
are just that -- guidelines.
There are many affordability
programs, both government
and conventional, that
have more lenient requirements
for low- and moderate-income
families.
Many of these programs
involve financial counseling
for low- and moderate-income
people interested in
buying a home and in
return, offer more
lenient requirements.
Generally speaking,
to qualify for conventional
loans, housing expenses
should not exceed 26%
to 28% of your gross
monthly income. For
FHA loans, the ratio
is 29% of gross monthly
income. Monthly housing
costs include the mortgage
principal, interest,
taxes and insurance,
often abbreviated PITI.
For example, if your
annual income is $30,000,
your gross monthly
income is $2,500, times
28% = $700. So you
would probably qualify
for a conventional
home loan that requires
monthly payments of
$700.
Any expenses that extend
11 months or more into
the future are termed
long-term debt, such
as a car loan. Total
monthly costs, including
PITI and all other
long-term debt, should
equal no greater than
33% to 36% of your
gross monthly income
for conventional loans.
Using the same example,
$2,500 x 36% = $900.
So the total of your
monthly housing expenses
plus any long-term
debts each month cannot
exceed $900. For FHA
the ratio is 41%.
Maximum allowable monthly
housing expense
26% - 28% of gross
monthly income - Conventional
29% of gross monthly
income - FHA
Maximum allowable monthly
housing expense and
long-term debt
33% - 36% of gross
monthly income - Conventional
41% of gross monthly
income - FHA
One way to determine
how much to spend for
housing is to compare
your monthly income
with monthly long-term
obligations and expenses.
Use the worksheet, "Evaluating
Your Financial Resources," to
determine how much
money you can spend
on housing. Be sure
to only include income
you can definitely
count on.
When budgeting to buy
a home, it is important
to allow enough money
for additional expenses
such as maintenance
and insurance costs.
If you are purchasing
an existing home, gather
information such as
utility cost averages
and maintenance costs
from previous owners
or tenants to help
you better prepare
for homeownership.
Homeowner's insurance
or property insurance
is another cost you
will have to consider.
The lending institution
holding the mortgage
will require insurance
in an amount sufficient
to cover the loan.
However, to protect
the full value of your
investment, you might
want to consider purchasing
insurance that provides
the full replacement
cost if the home is
destroyed. Some insurance
only provides a fixed
dollar amount which
may be insufficient
to rebuild a badly
damaged house.
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