Three elements are crucial to the purchase of a home—the down payment, closing costs, and qualifying for a mortgage. Here is a quick rundown of what you should know:
Typically, conventional lenders will require a 20% down payment, although you may be able to find loans with down payments of as little as 5% (perhaps less in some cases). With down payments less than 20%, you likely will have to pay private mortgage insurance, which guarantees the lender will be repaid in case of default.
Mortgages insured by the Federal Housing Administration (FHA) and thoseavailable to U.S. veterans often require very low down payments. Ask your lender if you can qualify for one of these loans.
If you are having trouble coming up with the down payment, here are some tips to ease the burden:
No matter what home you buy, there will be closing costs. These can include: discount points, title insurance, escrow fees, attorney fees, termite report, recording fees, appraisal fees, document preparation fees, notary fees, and a loan underwriting fee. Usually these are due in cash, but sometimes they can be folded into the mortgage.
The size of the mortgage you qualify for is based mainly on the interest rate offered and your income. The higher the interest rate, the higher the monthly payment. And, the higher the monthly payment, the more income you will need to qualify for the mortgage.
Contacting a lender before you’re actually ready to make an offer on a house IS a great idea. This head start gives you a chance to work out any issues that may arise without the pressure of contract deadlines.