HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT YOU CAN AFFORD?
The lender will make this decision based on your debt-to-income ratio. What this lender does is compare your gross income, which means before taxes, to your housing expenses, as well as any other expenses that may be present in your life. These non-housing expenses are basically any other debts that you are attempting to pay off or other payments that you may have on a set schedule. This is done in order to determine exactly how much you will spend each month on the various things in your life.
Your total mortgage payment should not be more than 29% of your income and your debt-to-income ratio percentage should not be more than 41%. The lender will also consider the closing costs that are present in your particular situation, which will vary from deal to deal, but generally covers the cost of paperwork, as well as any other administrative costs that may require payment.
WHAT IS EARNEST MONEY? HOW MUCH SHOULD I SET ASIDE?
Your earnest money is money that is used as a deposit in order to signify your desire to purchase the home. You want to be able to convince the seller that you are serious in your desire to purchase the home, so you will want to make this deposit anywhere from 1-5% of the total cost of the home. If your offer is accepted, this earnest money will go towards the cost of the home, down payments, or closing costs. If you are not able to reach an agreement with the seller, this money will be returned to you. If you back out of the deal for whatever reason, however, the seller may get to keep the entire amount of his or her troubles
HOW LARGE OF A DOWN PAYMENT DO I NEED?
This depends entirely on what the mortgage lenders asks for, but there are options that are designed to make owning a home easier for you. Currently, it is not uncommon to find lenders who will only require 5% down and they are especially more likely to offer a lower amount for first time buyers. The more money you put down, however, the less you will have to borrow, which will mean lower interest rates and lower monthly payment so if you can afford it, try to put as much down as possible. Most mortgages that ask for less than 20% down will require you to take out an insurance policy in order to protect the lender against default. Also, remember that things like closing costs, moving expenses, and other miscellaneous expenses will have to be paid as well.
WHAT CAN I USE TO PAY THE DOWN PAYMENT AND CLOSING COSTS OF AN FHA LOAN?
In order to pay the down payment and the closing costs, you can use any money that you can get your hands on. This includes things like gifts and private loans, and whatever other ways you know of to get money. If you are able to do repairs to the home yourself, something you get can the seller to pay parts of these for you. This is called sweat equity and it can lower the amount of money that you have to come up with immediately. No matter what method you use, be sure to have this amount of money in actual cash because you cannot currently use your mortgage money to pay for these things.
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