The amount of a loan for which you qualify is based on two different calculations.Using what are known as qualification ratios, lenders evaluate your income and long-term debts to determine a "safe" amount for your mortgage payments. A fairly standard ratio is 33/38. Certain mortgage plans sometimes use more liberal ratios-for example, the Federal Housing Authority(FHA)currently uses 31/43.

Here's how it works: With a 33/38 ratio, you are allowed to spend up to 33% of your gross monthly income for mortgage payments.

The lender will then run a different calculation. This one is your loan payment and debt payments combined, which may not exceed 38% of your gross monthly income.

Lenders use your gross monthly income (Before taxes)to calculate exactly how much you may borrow. As part of this calculation, they include the property taxes, homeowner's insurance, and if applicable, homeowner association fees, as part of your monthly expense.

For Example:
If your gross monthly income is $3000 per month and your credit cards, auto loan and personal loan debts are $500 per month, the calculations would break down as follows:
$3000 x 33% = $990

$3000 x 38% = $1140 less your monthly debts of $500 = $640
Because we take the lessor of the two calculations, you would have $640 available for your new mortgage.

Even if you're sure you have excellent credit, it's wise to double-check at the outset. Straightening out any errors or disputed items now will avoid troublesome holdups down the road when you're waiting for mortgage approval.

You may see disputed items, in addition to errors caused by a faulty social security number, a name similar to yours, or a court ordered judgment you paid off that hasn't been cleared from the public records. If such items appear, write a letter to the appropriate credit bureau. Credit bureaus are required to help you straighten things out in a reasonable time (usually 30 - 60 days). But it could take longer or you may not have 30-60 days for your settlement. It is important to find out these things and take care of them in the beginning.

The normal down payment for conventional loans is 5% and for FHA it is 2.25%. But recently, there are 3% and no down payment options available for Conventional loans. Usually, the interest rate on the 3% & zero down loans are a little higher. We can tailor a down payment plan to suit your particular needs. VA loans generally require no down payment.

The lender will want to know how much money you plan to put down and the source of those funds. Sources you may draw upon include savings, stocks and bonds, pension funds, real estate holdings, life insurance policies, mutual funds, and employee savings plans.

You may also use a gift of money from a family member that need not be repaid. If you do this, you will need to present a letter to your lender that states the amount of the gift and is signed by the gift donor and yourself. We have a standard form which we will provide to you. You will also need to show that the gift left the donor's account and was deposited into your account or given directly to the real estate office handling the sale.

You are also now allowed to withdraw up to $10,000 from both traditional and Roth Individual Retirement Accounts (IRAs) with no early withdrawal penalty, if used towards buying your first home. Check with your benefits administrator for specific details & rules.

Under some mortgage programs, such as Fannie Mae's Community Home Buyer's Option, part of your down payment may come from a grant from a nonprofit housing provider in your community.

The term "conforming," as opposed to "nonconforming," is used to classify loans that fall within the guidelines as set forth by Fannie Mae and Freddie Mac.  These are the two private, congressionally chartered companies that buy mortgage loans from lenders, thereby ensuring that mortgage funds are available at all times in all locations around the country. These loans generally offer the most attractive rates.

Non-Conforming loans either exceed the maximum loan size set by Fannie Mae and Freddie Mac (Currently $307,000.00). These loans are usually called a "JUMBO" loan. Sometimes it is not the loan amount but some other aspect such as credit, verification of income or property type that does not fall within "Conforming Guidelines". The rates for these loans are typically higher.

You can choose a mortgage with an interest rate that is fixed for the entire term of the loan or one that changes throughout.  A fixed-rate loan gives you the security of knowing that your interest rate will never change during the term of the loan.  An adjustable-rate mortgage (called an ARM) has an interest rate that will vary during the life of the loan, with the possibility of both increases and decreases to the interest rate and consequently to your mortgage payments.

Adjustable rates start lower than fixed rates but depending on the market at the time of "Adjustment" could wind up higher than a fixed rate. But sometimes, and the past 10 years have been reflective of this, the ARMs stay below the fixed rates consistently. However, there are no guarantees. So the question of whether to go with a fixed or an adjustable is a personal decision that you have to make based on your tolerance for risk.

Other closing costs are possible and should be considered when evaluating your financial situation.  These may include, but are not limited to:

        Title insurance fee

        Survey charge

        Attorney fees or escrow fees

        Document preparation fee

        Garbage or trash collection fees; and the big one

        Points; up-front interest paid in return for a lower interest rate.  Each point is one percent of the loan amount.  Sometimes you can contract for the seller to pay your points.

If you put less than 20% down on most loans, you'll be asked to protect the lender by carrying private mortgage insurance (PMI).  Carrying PMI ensures that the debt is repaid if you default on the loan.  This charge adds approximately an extra half a percent onto the loan.

FHA mortgages, in return for their low-down-payment requirements, also charge for mortgage insurance premiums (MIP).