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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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