How much can you afford?
Any lender will want to make sure you are able to afford the home you buy. Typically, you are eligible to purchase a home worth two or three times your annual income, depending on your savings and debts. Your total monthly payment for housing expenses, which include mortgage principal, interest, taxes, and insurance (PITI), should not be more than 30-40% of your total monthly income. As interest rates rises and fall, the maximum sales price you can consider will also change.
The benefits of home ownership should also be considered as you approach making a decision about purchasing. As you make mortgage payments each month, your property is typically increasing in value and you're building equity in your home and increasing your net worth. A more immediate benefit is the tax benefit of deducting the interest paid on your mortgage each year when you file your personal tax return.
No Down payment Loan (100% Financing) -- 80/20 Option
The main advantage of this type of loan, also known as 100% financing, is the ability to buy a home with almost no money down. If you have a strong credit profile but have limited funds to commit to a down payment, then 80/20 mortgage is just right for you.
Option ARM Loans
One of the most creative products that doesn't require a set payment each month is the option ARM. After the first payment, you get four payment options to choose from each month:
- your lender sends you a monthly statement offering a minimum payment
- interest-only payment
- 30-year amortized payment or
- 15-year amortized payment.
Fixed Rate Mortgages
With fixed rate mortgage (FRM) loan the interest rate and your mortgage monthly payments remain fixed for the period of the loan. Fixed-rate mortgages are available for 40, 30, 25, 20, 15 years and 10 years. Generally, the shorter the term of a loan, the lower the interest rate you could get.
Adjustable Rate Mortgages
Variable or adjustable loan is loan whose interest rate, and accordingly monthly payments, fluctuates over the period of the loan. With this type of mortgage, periodic adjustments based on changes in a defined index are made to the interest rate. The index for your particular loan is established at the time of application.
