The biggest challenge for most first-time home buyers is saving up enough money for a down payment especially in markets like San Francisco and New York City, where home prices have soared over the last few years. But thanks to a growing assortment of financing options, it's increasingly possible to find mortgages for as much as 97% of a home's value. In other words, you could put down as little as $5,514 for a home that costs $183,800, the national median in 2004, according to the National Association of Realtors. How Much Can You Afford? The answer to that is a function of two things: How much you can borrow and how much of a down payment you can muster. As a rule of thumb, your annual mortgage payment, taxes and home owner's insurance shouldn't exceed 28% of your gross income. Then determine how much cash you have for a down payment, leaving yourself enough left over to pay those pesky closing costs, which can add up to 3% to 5% of your total home's value (plus a little something extra for emergency repairs once you move into your new home). But the more money you can muster for a down payment, the more options you will have. For example, Fannie Mae's new "start-up mortgage" allows borrowers who can put down 5% to qualify for a loan on a smaller salary than with a 3% down payment. You will need to find a Fannie Mae-approved lender to take advantage of this program. Mortgage loans can either be a fixed rate loan or a variable rate loan. A fixed rate loan offers the same interest rate and payment rate every month. With a fixed rate loan, you will always know how much you will need to pay every month and you will know when you have already accomplished all of your loan payments. With a variable rate loan, you can start with a lower interest rate as well as a lower monthly payment. However, your interest rate and your monthly payment amount can change several times over the lifetime of your loan. Usually, this amount is tied up to a financial index like the U.S. Treasury Securities index. It is also important to find out the coverage of a first time home buyers loan. A mortgage loan will usually cover four expenses that a home buyer will face when they are buying a home. However, not all loans cover them. A mortgage will cover several expenses such as the principal payment, the interest, the home insurance and the city or county taxes that are due for the home. Usually, a mortgage loan can last for 30 years. There are also mortgage loans that only last for 15 years. It is important to note that the shorter the lifetime of a loan is, the higher will be the payments required. Pay Close Attention to Fees Fees can easily account for 2% of the total amount borrowed, according to a 2004 report by Consumer Reports. Unfortunately, you can't avoid many of them outright, but you can save money by choosing a lender that's competitive. The tough part? Fees are hardly standard. Not all lenders charge the same fees, or even call them by the same names. Or they might roll a few fees " say, your credit report and upfront appraisal " into a larger umbrella fee, like an application charge. (See the chart below for common fees and costs.)
Please Rate this Article 5 out of 54 out of 53 out of 52 out of 51 out of 5
Not yet Rated
