|
Qualifying
In today’s market, an “affordable” home is
not so much determined by sales price as it is by the financing
which translates that price into a monthly payment. A house
hunter’s first step is to set a housing budget, then
go shopping for the house (price) and payments (P.I.T.I.)
that fit that budget.
Even though there are many ways to qualify to buy a home,
make sure the monthly payment makes sense for you. How large
a payment you qualify for will depend upon a variety of
factors. These factors include credit history, size of down
payment, and length of employment. Everyone’s circumstances
are different.
How
Much House Can I Afford?
The key items are the size of the down payment, interest
rate, any monthly property fees, and the amount of the mortgage.
The down payment might be zero in the case of VA-backed
mortgages. A down payment of 20% or more on a conventional
loan will eliminate the need for mortgage insurance. Your
Long & Foster Sales Associate can be very helpful to
you in determining just how much house you can afford.
Sources
For Your Down Payment
The obvious source of money for your down payment is either
your savings or the proceeds from the sale of a home you
already own. But there are some other not so obvious sources.
In recent years, for example “parent power” has
taken some new twists for first-time buyers.
Home Equity Loan - Parents often have considerable equity
built up in their own homes—and many are tapping that
asset through home equity loans to make a gift to the youngsters.
Ask your tax advisor for current information. Often lenders
will require a “gift letter” to verify that parents
don’t expect repayment.
Shared Equity/Profit-Sharing - In return for providing a
part of the down payment, the parents (or another investor)
share in the “profit” or net equity of the house
when the homeowners eventually sell it.
Life Insurance - If you have built up a cash value on your
life insurance policy over the years, you may be able to
borrow from your insurance company up to the amount of this
accumulated cash value. Often, they will even ask a more
favorable interest rate than would be asked for other types
of loans.
Stocks and Bonds - If you feel the market doesn’t favor
selling your stocks or bonds now, you may be able to secure
a bank loan using your portfolio as security.
Company Profit Sharing or Savings Plan - Look into the possibility
of withdrawing what you have in your profit sharing or savings
plan account or borrowing against it, if your company has
these programs.
Mortgage Insurance Can Reduce Down
Payment
If you obtain a conventional loan, you may make a down payment
of 5% or less. Through the lender, you will be required
to buy private mortgage insurance (PMI). This insurance
provides protection for the lender in case of default, allowing
the lender to approve a larger loan amount.
Mortgage insurance offers a variety of payment options.
You may make an initial payment at closing and monthly payments
with the house payment. You may make only an initial payment
or only monthly payments. You may even increase your interest
rate and have the lender pay the insurance. Be sure to ask
your lender for a comparison of the benefits of each of
these plans.
One
Caution
The larger the down payment, the less money you need to
borrow. This means a lower monthly payment. However, remember
that in addition to your down payment and monthly payments,
you will need money to pay for closing costs, moving, appliances,
household setup, a reserve for family emergencies, and other
miscellaneous items. So don’t plan to put your last
penny down on the closing table.
More
Mortgage Help
New types of mortgages exist featuring help for first- time
buyers and flexible terms for current home owners. These
help home buyers to “afford more house” and to
buy sooner by expanding qualification criteria.
|
