First Things First - How Much Can You Easily Afford?

Here Are A Few Guidelines That Apply To This Theory:

1. Calculate and total the percentage of your monthly gross income, that goes toward the mortgage itself, the principal paid on the mortgage, your property taxes and any insurance (including PMI). This is known as the "front" ratio.
   
2. Then calculate the percentage arrived at in number 1, above, plus your consumer debts; auto and/or school loans, credit and/or revolving charge card payments, alimony and/or child support, etc. This is known as the "back" ratio.
   
3. Typically, the front should be no more than 33% in most cases and the back 38%, relative to your ( or combined if there is a going to be a cosigner to the loan) gross monthly income These figures can vary, depending on the current state of the economy and lending rates, so check up on this while you are doing your calculating.
   
4. The less you are able to put down in cash, the less you will be able to stray from these percentages and be allowed, or be able to assume in regard to your monthly payments. However, the better your credit rating is, the more you will be able to offset a small down payment.
   
5. The FHA will allow for a 29/41 debt-to-income ratio and the Veterans Administration is willing to forego the front and let the back stand at 41%.

Note: If your calculations, in regard to the above, meet these criteria, then you will have a debt-to-income ratio that is considered “conforming”. If you are “conforming” then you can apply through Fannie Mae and Freddie Mac, two Federal loan programs that are of great assistance to home buyers. (Please see section on Fannie Mae and Freddie Mac.) Conforming loans also make finding a willing mortgage lender much easier. And the rates will be a lot more to your liking, no matter what your budget.

A Few Options And Programs That Can Make Borrowing More Affordable Are:

1. Private Mortgage Insurance - PMI is a great way for those prospective home buyers, who have smaller down payments to secure a loan. If you need to finance over eighty percent of the value of your intended property PMI will assure the lender of reimbursement and thus make it easier and more affordable.
   
2. If you have other investments, such as stocks, bonds or a home that you own out-right, these can all be used as collateral in many cases. Possibly you own antiques or works of art, or something from an inheritance that is of substantial value. You can have them appraised and use them for collateral against your loan.
   
3. What about an IRA plan? If you happen to be a first-time home buyer you are allowed to withdraw up to ten thousand dollars, “penalty free”. These funds will need to be claimed as income when you file your yearly tax returns, plus this is a nest-egg investment that you should not touch if you do not have to.
   
4. Similar to an IRA, a 401 K plan can also be tapped for home buying in many cases. Do not follow this route if you feel that you will be changing your job in the near future, however. The fact that the funds are tied to an employee pension plan dictates that, as soon as you quit your job, the money you borrowed form the 401 will need to be paid back in full.
   
5. Seek assistance form the government. The US Department of Housing and Urban Development, the Veteran’s Administration, as well as many local and State programs are available to first-time home buyers. Surf the web, go to an office near you or call them on the phone to find out which programs may be available to suit your lending needs.
   
6. Last but not least, a gift. If you are able to secure a gift, from a relative, that you can validate as not having to be repaid, you can use this to increase your down payment and off-set the total loan amount and your interest rate.

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