helping you afford your first or next home purchase
Quick nine tips on what you can undertake to afford your home purchase loan. There are programs available to help you into your home. But the basics still hold true. Save money for the down, have good credit, and keep your debt position low.
Below are nine (9) quick affordability tips for home purchase loans:
Tip1: Start Saving Money
Start saving your money for the down payment and closing costs. You will need at least 5% of the home purchase price for your down payment (best to have 20% to avoid PMI), and another 5-6% of the home purchase price for closing costs.
Set up a spending plan where you can set aside savings:
link to our Budget Planning Module
Tip2: Review Other Help
Note that the IRS allows first-time home buyers to use retirement savings for purchasing their first home. If you qualify, additional sources of money for purchasing a home can come from:
- government agencies: FHA / VHA / RHA
- State or local government agencies: view your state
- employers and/or private foundations
- family members donating a "gift":
Usually the mortgage lender requires a gift letter verifying that the gift is not a loan and that you do not have to repay it.
Tip3: View Mortgage Loans
This might be a good time to review mortgage loan options that are available:
Tip4: Watch Interest Rates
Depending on the market, you might be able to afford a home mortgage if interest rates are low and dropping.
Keep your eye on the movement of interest rates and be ready to start your application if interest rates meet your financial hurdles.
Tip5: Clean Up Your Credit
Make sure that you have a clean credit report prior to submitting your mortgage application. It will prevent delays and non-approvals. We have some valuable quick notes for review:
Note: the higher your credit score, the lower your interest rate.
Tip6: Maintain Good Ratios
Lenders require mortgage applicants to be within certain "housing" and "debt-to-income" ratios.
Run your numbers:
link to calculate your ratios
Some lenders will increase both the housing ratio and debt-to-income ratio for qualified applicants
Tip7: Reduce Your Debt
If you have too much debt — meaning your "debt-to-income" ratio is above the minimum threshold — you will need to reduce or consolidate your debts prior to submitting your mortgage application:
View our debt management guide for reduction strategies
Tip8: Understand the Process
Before you submit your mortgage application, review these steps about the mortgage lending process. It will give you understanding how the process works so that you can negotiate the best terms for your financial needs:
review: 10-step mortgage lending process
Tip9: Estimate How Much
Use the calculator at the right to estimate how much home you can afford.
Note that this calculation does not take in the cost of your escrow payment. See Understanding the True Cost of a Mortgage