Financing Your Purchase. "How much can I afford? What do I qualify for? How do I qualify? These are all questions that future homeowners ask. Financing is a very import part of your home buying experience. When you are looking at homes being pre-qualified can make the difference in you getting your dream home.

How much of a down payment will I need to buy a home?
A down payment of 20% has been the benchmark for conventional financing, but today many options are available, some requiring as little as 0% down. For buyers who qualify for conventional financing but can’t handle the high down payment requirements, lenders offer this financing with PMI (Private Mortgage Insurance). Designed to protect the lender against default by the borrower, PMI allows you to obtain traditional financing with a down payment significantly lower than the standard 20%.

Government-insured loans are also available from 0% to 3% down.

How does a lender determine the maximum mortgage I can afford?
The three primary areas lenders examine in determining the size of the mortgage you can handle are your monthly income, non-housing expenses, and cash available for down payment and closing costs.

There are a number of different ways lenders interpret these variables to estimate your mortgage capacity. The most popular method is detailed here. Most lenders feel a family should spend no more than 28% of its gross monthly income on housing costs, including the mortgage, insurance, and real estate taxes. Also, these housing costs plus your long-term debts (car loans, student loans, etc.) shouldn’t exceed 36% of your income–or government loans at 29/41% ratio.

What are the steps involved in the loan process?
The information your lender needs is not much different than what is needed when you apply for a major credit card: names and addresses of your employer and bank account numbers and balances. The lender will also need other financial information, such as installment payments, auto loans, charge cards, and department store accounts. The location and description of the property are also required, as well as a professional appraisal of the property you want to purchase.

Are there any mortgages especially designed for the first-time buyers?
Today, first-time buyers enjoy a number of mortgage options that make purchasing a home more affordable by minimizing down payments and keeping monthly payments as low as possible during the early years of the loan.

Most ARMs (Adjustable Rate Mortgages) feature an interest rate that is often below market for the first year and may only rise gradually after that, therefore, lowering your house payment in the beginning.

VA and FHA-insured loans call for extremely low down payment (0-3% of the purchase price) and offer the benefit that 100% of your down payment can come as a gift.

Finally, first-timers who can find a cooperative seller or third-party investor can look into such nontraditional financing methods as a lease/buy arrangement.

Contact us for your complete Buyer's Guide that will include even more information on Financing your Dream Home. register