HOW YOU QUALIFY
The best way to determine your budget is to talk to your real estate agent and have your lender prequalify you for a loan. There is a difference between prequalification and preapproval. Prequalification is an estimate of what you will be able to afford.
Preapproval is a formal process where your lender examines your finances and credit and agrees in advance to loan you money up to a specified amount.
Hunting for $$ toward your down payment?
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WHAT FACTORS ARE IMPORTANT TO LENDERS?
Banks and lending institutions use several criteria to determine how much money they will lend you.
These include:
•Your gross monthly income
•Your credit history
•Amount of your outstanding debts
•Your savings--or the amount of money you have available to use for your down payment and closing costs
•Your choice of mortgage (i.e. 30-year, FHA, etc.)
•Current interest rates
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TWO IMPORTANT RATIOS
Your lender will also use your financial information to calculate two, very important ratios:
your debt-to-income ratio and housing expense ratio.
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DEBT-TO-INCOME RATIO
Many lenders have a rule of thumb that your payments to debt you are making each month (car payment, credit card, student loan, etc.) should not exceed 36 percent of your gross monthly income. For every $1,000 you earn each month, your bills should not be more than $360. That can fluctuate, but it's a good benchmark. FHA loans are a little more lenient.
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HOUSING EXPENSE RATIO
Generally it is difficult to obtain a loan if the mortgage payment will be more than 28 to 33 percent of your gross monthly income. So, for every thousand dollars in income, $330 in mortgage.
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OTHER WAYS TO IMPROVE YOUR PURCHASING POWER:
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GIFTS
If you are having trouble saving up the money, lenders will normally allow you to use gift funds for the down payment and closing costs. However, they will usually require a "gift letter" stating the gift does not have to be repaid, and require you to pay a portion of the down payment with your own cash.
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NEGOTIATING CLOSING COSTS
Through negotiating, some sellers may agree to contribute to paying some or all of your closing costs (for example, if you agree to meet their full asking price). If you want to try this, make sure to ask your real estate agent for their advice.
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LOAN PROGRAMS
Many state and local governments have great programs designed to help homebuyers. Benefits include loans at reduced interest rates, or with little or no down payments.
NO ONE told me about these things when I bought my first place, but it's not too late for you...
Arlington --- for first-time homebuyers w/ moderate income there is a program that can give you assistance for up to 25% of the home price which you can use for closing costs and part of your down payment.
Alexandria --- you could get up to $50,000 in down payment assistance as a first-time homebuyer in the city of Alexandria.
DC --- it really sounds crazy but it is possible to get up to $84,000 in down payment and help toward closing costs.
