Financing Explained
What factors need consideration when applying
for a loan?
Income vs. Debt
When making this determination, lenders consider the income of all parties
who will be owners of the property. Lenders are interested mainly in your
present monthly payments because they want to be sure you can handle the
mortgage payment you'll be applying for.
Down Payment Requirements
Mortgage plans have various down payment requirements and they can range from
10% down on full documentation loans to 30% down with far fewer requirements
for non resident foreign buyers. |
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Private Mortgage Insurance
If you put less than 20% down on most loans, you'll be asked to
protect the lender by carrying private mortgage insurance (PMI).
Carrying PMI ensures that the debt is repaid if you default on
the loan. This adds approximately an extra half a percent onto
the loan.
How Much House Can You Afford?
The amount of loan for which you qualify is based on two different
calculations. Using what are known as qualification ratios, lenders
evaluate your income and long-term debts to determine a "safe" amount
for your mortgage payments. A fairly standard ratio is 28/33.
Here's how it works: With a 28/33 ratio, you'd be allowed to
spend up to 28% of your gross monthly income for mortgage payments.
The lender will then run a different calculation. This one is
your loan payment and debt payments combined, which may not exceed
33% of your gross monthly income. To calculate exactly how much
you may borrow, you also need an estimate of current interest
rates. As part of this calculation, you also need to estimate
and include the property taxes, homeowner’s insurance,
and Homeowner Association fees (if applicable) you might need
to pay, which are considered part of your monthly expense.
Additional Information
For more information contact us
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