Applying for a home loan is the first step in the home buying process.
• Since interest rates are generally locked in for a set period of time, you will know in advance exactly what your payments will be on offers you choose to make.
• You won't waste time considering homes you cannot afford.
• A seller may choose to make concessions if they know that your financing is secured. You are like a cash buyer, and this may make your offer more competitive.
• You can select the best loan package for you, without being under pressure.
• The down payment
• The closing costs associated with your transaction
• Your ability to qualify for a mortgage.
Most loans today require a down payment between 3.5% and 5.0% depending on the type and terms of the loan. With a 20-25% down payment, you may be eligible to take advantage of special fast-track programs possibly eliminating mortgage insurance.
You may be required to pay fees for loan processing and other closing costs. These fees must be paid in full at the final settlement, unless you are able to include them in your financing. Typically closing costs will range between 2-5% of your mortgage loan.
Most lenders require that your monthly payment range between 25-28% of your gross monthly income. Your mortgage payments to the lender includes the following items (PITI):
The principal of the loan (P)
The interest on the loan (I)
Property taxes (T)
Homeowner's insurance (I)
Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income. These factors determine your ability to secure a home loan: Credit Report, Assets, Income and Property Values.