guide to buying

Why Should I Buy?    How Much Can I Afford?    PreApprovals    Types Of Loans   
Shopping For A Home    Finding A Realtor    Negotiating    Closing The Deal

Look up the factor from the Monthly Payment Factors table for a given interest rate and mortgage term. For instance, an eight percent loan for 30 years has a factor of .00734.

Take the figure in row e from the Monthly Mortgage Worksheet and divide by the factor. For instance, if you can afford $1,500 a month for mortgage principal and interest, you can likely qualify for a maximum loan amount of $204,360.

Or, if you know how much your loan request is:

Multiply the loan amount by the same factor to calculate the monthly mortgage principal and interest payment. For instance, $200,000 times .00734 equals $1,468. If this figure is equal to or less than row e in the Monthly Mortgage worksheet, you can probably qualify for that loan amount.

The 28 percent and 36 percent rules are guidelines. It's a good idea to ask your lender what percentage it currently uses. These ratios change over time too. When the economy is strong and unemployment is low, these ratios tend to rise as lenders seek loans more aggressively. When the economy is headed down and unemployment is rising, they tend to fall as lenders tighten their lending requirements.

Buying a home depends on your ability to put together a down payment. The inability to do so is the most common reason people are unable to buy a home. Many people have enough income to make monthly mortgage payments but are never able to put together the lump sum upfront.

Although some lenders will accept five percent of the home purchase price as a down payment, most lenders require a down payment of at least 10 percent. If you can make a down payment of 20 percent or more, you will save thousands of dollars in interest over the mortgage's life. This will also help you avoid the need for private mortgage insurance. (For information on the Homeowners Protection Act and its impact on saving you potentially thousands of dollars of unnecessary private mortgage insurance, visit the Web site of the U.S. Department of Housing and Urban Development.).

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