As you’re house hunting, know what you can afford. There is no point and much heartache involved in finding your dream-house and then discovering it is out of your price range. Not sure? Your real-estate agent or a mortgage lender can take into account your income, down-payment amount and other financial obligations as well as current interest rates to give you a price range in just a few minutes.

Look for a housing payment-to-income ratio of between 28% (conservative) and 33% (aggressive). Source: FHA

A not so gentle hint – clean up your credit! Pay off the balances on all of your revolving credit cards. Then have a credit agency run a credit report on you, so you can clear up any problems. Also, put off making large item purchases like cars or boats (the installment loan payment will affect how much house you can afford). Fair Credit Report Act - You can receive a FREE copy of your credit report annually. This is a must when you start looking for home. You can make this request in three ways:

• Visit www.annualcreditreport.com
• Call toll-free 1-800-322-8228
• Visit www.ftc.gov/credit

Your lender considers all your revolving and installment debt your total debt-to-income ratio should be no more than 38%. Source: FHA

Are your proverbial ducks in a row? Do you have cold hard cash for a down payment? How about funds for an earnest money deposit? If you are counting on a “gift letter” from your family, make sure you have the money in your account before you count it towards a down payment. Trust us, lenders like borrowers with their ducks neatly lined up!

Types of Mortgages

You should know about Mortgage Insurance, also known as PMI. PMI is provided by specialized insurance companies to protect lenders against loss in case borrowers default. Having PMI allows buyers to put down as little as 3 – 5% on a home purchase instead of the 20% usually required by lenders. Most lenders require PMI for a loan with a loan-to-value of more than 80%. Source: Mortgage Insurance Companies of America

• Find no-down payment and low-down payment programs, forgivable loans, grant programs and more – visit www.kchomeprograms.com learn about programs like these that can help pave the way!
  
  
• Conventional Fixed Rate Loan: This is one of the most common types of home loans. Usually 15-, 20- or 30-year. Your payments and interest rate stay the same the entire loan period. The 15-year loan carries higher payments, obviously, but will save you thousands in interest over the life of the loan.
  
  
• Adjustable Rate Loan: Can be easier to qualify for than a fixed rate loan. You can also qualify for a higher loan amount. And if interest rates go down in the future, you may be able to lower your interest rate.
  
  
• Fixed Rate Balloon Loan: You make set payments for a certain period of time – say, seven years – after which time your loan comes due. Your payments will be slightly lower than with a 30-year fixed rate. When the loan comes due, you can either make a lump sum payment (right!) or refinance the balance of the loan.
  
  
• Zero Closing Cost/No-Point Loan: You need less money to start out with, but your interest rate will be slightly higher.
  
  
• Fixed Rate Balloon Loan: You make set payments for a certain period of time – say, seven years – after which time your loan comes due. Your payments will be slightly lower than with a 30-year fixed rate. When the loan comes due, you can either make a lump sum payment (right!) or refinance the balance of the loan.
  
  
• FHA Loan: Financed through the Federal Housing Administration. Helps lower-income applicants buy a home with a much smaller down payment (3%-5% of the appraised value or the purchase price, whichever is lower) than conventional loans. There is a maximum loan amount determined by the FHA based on the average cost of housing in the region.
  
  
• VA Loan: Qualified veterans may buy a house up to $203,000 with no down payment. Check with your nearest VA office to see if you are eligible. NOTE: Some sellers may not accept a contract to purchase subject to FHA or VA financing due to the condition of the property and the attitude of the sellers toward this type of loan and the requirements. Best to check out both government as well as conventional financing.

Find a Mortgage Company About lenders, bankers and brokers and what’s the difference? A mortgage banker is a direct lender. When you borrow from a mortgage banker, they are loaning you their money (of course, they probably sell the mortgage but that’s a story for another day). A mortgage broker is a middleman. The broker can match you with a wide array of products from companies that generally do not deal directly with the public. When looking for a lender, a quick Google search will give you more options than you ever dreamed existed. Don’t forget to check with local lenders for personal service and attention! Which ever you choose, shopping around can save you some serious money. Compare interest rates and closing costs before you make your decision.  Also, whom are you going to call if there’s a problem? Know before you sign on the dotted line!

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