Applicants with
a good credit report will be in a stronger
position to negotiate best rate and terms
Your credit report is used by banks and other lending institutions to determine
your creditworthiness. The report can
be a factor in a lending institution's
decision to approve or decline your mortgage
application.
You should review your credit report for
any errors before submitting your mortgage
application.
Your home purchase
should be in the income range that you
can afford
You need to analyze how much house you
can afford before blindly submitting
an application with too high of a mortgage
amount.
Use our housing
calculator for a quick estimate on how much home you can afford.
Note: applicants
living in markets where home prices are high will consider minimum-payment mortgage plans to be within their income affordability range.
(links to our mortgage loan center)
The true cost
of a mortgage loan includes the loan payment,
taxes, insurance and other related charges
Additional monthly costs such as real
estate taxes, hazardous insurance, and
other home ownership related fees can
add to your total monthly payment and
reduce the amount of home your can afford.
Many times buyers ignore these costs when
figuring how much of a home they can afford.
These costs are considered in your capacity
ratios that lenders use to approve your
mortgage application:
Your
capacity to repay your mortgage loan is
a key factor for lender approval
Your capacity to
repay the mortgage loan is a
key factor that lenders use to qualify
you for a mortgage loan. These ratios determine the level of debt you can consume based on the amount of income you have.
So how much up-front cash will you need to close on your mortgage:
cash for a down payment:
you need at least 20% of the home purchase price to avoid PMI or other fees
cash for closing costs:
you should estimate about 3-7% of the home purchase price
Note: having enough money for a down payment and closing costs prevents many first-time home buyers from entering the market. There are 100%+ LTV mortgages that allow buyers to get into homes without the necessary cash on hand. Link to our Mortgage Loan Center for information on zero-down mortgages
(links to our mortgage loan center)
Now let's add up the numbers.
This will
help figure out what
parameters you need to change to fit within your budget and income
ratios (discussed above).
Calculation Notes: the amount of available cash
/ equity is the cash you have on hand
for your down payment and closing costs.
Equity refers to the resale equity value
of your existing home if any, that will
be available to you once you sell your
home.
Closing costs is calculated as percentage
of the estimated purchase price of the
home — this percentage can range
between 3-7% depending on your location
and number of points.
The American
Housing Survey shows that the median
taxes paid averaged $10 per $1,000 in
home value. The property insurance paid
averaged $30 per month.
Any percentage LTV
that is greater than 80% may require
private mortgage insurance, which
can add to the total cost of your loan
— if your LTV% (calculated below)
is greater than 80%, enter 0.005 in
the PMI field and recalculate
* Calculations
are based upon the assumptions
you entered. Please note
that rounding errors can
make a small difference
in calculations. Your
actual lending
rate may vary depending
on your credit quality
and lender. The circumstances
surrounding your credit
and loan qualifications
may result in different
calculations.
Loan pre-qualification
will strengthen your negotiating position
with the seller
Ask at least one
lender to pre-qualify you for a mortgage.
There is no obligation on you to obtain
a loan from that lender, nor does it
obligate the lender to provide a mortgage
loan.
The lender will analyze your credit
position, current income, and outstanding
debts to give you a reasonable estimate
of your borrowing amount.
Mortgage rates change daily ... show watch them carefully
Sample of the average national weekly rates posted every Thursday by Freddie Mac:
The quoted rate you see may not be the actual rate you receive.
Your actual mortgage
rate will be determined by your
overall credit score, your credit ratios,
your location, and your negotiation
skills to shop best rate.
compare the offers
and terms from multiple lenders. You should have at least 3-4 offers.
Select 2-3 lenders of your choice
and begin negotiating best rate,
terms, points, and closing costs. Consider the various mortgage loan products to design a mortgage plan that works for you.
Depending on your credit strength, you
can negotiate a reduction in rate or
points, closing costs, terms, penalty
clauses, etc. If you have a strong credit
rating, lenders will work hard to keep
your business.
After you select and sign the lending
agreement with your lender of choice,
your lender (or closing agent) will arrange closing where the title
ownership of the home transfers to you.
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