Income. Debt. Down Payment. Closing Costs. Two Years of Income Tax Returns. Assets. Liabilities. IRAs. You want WHAT? Just what can I afford?

Here’s Where to Start
Before finding your dream home- sit down with a lender. You can get a simple verbal pre-qualification in about 20 minutes… and a full-fledged pre-approval in about 5 business days.

Pre-qualification lets you to focus your search in the correct price range. (This saves a lot of wasted time and frustration.) It gives you an edge when competing with other offers on a home you find. If a seller is deciding between two offers—your qualified offer and an unqualified one, they’re much more likely to pick yours. It also provides you with leverage when negotiating with a seller in a non-competitive atmosphere.

It essentially makes you a cash buyer!

The amount of home you qualify for is determined by three key factors: Your down payment, your ability to qualify for a mortgage, and closing costs.

The Down Payment
While current homeowners can rely on equity from their home sale, as a first time buyer you’re limited to the money you can save. The days of having to put 20 percent down on a home are over. With the various programs available today, you may even be able to buy with NO MONEY DOWN!

Qualifying for the Mortgage
There are two basic guidelines lenders use to determine the size of mortgage you’re eligible for:

1. Your monthly mortgage payment of principal, interest, taxes and insurance (PITI) shouldn’t exceed 25 to 28% of your monthly gross income.

2. Your monthly housing cost (PITI) plus other long-term debt should not exceed 36 to 43% of your monthly gross income.

Many lenders also consider 4 key factors to determine your ability to qualify for a home loan:

Income – This includes your gross monthly income and secondary income (commissions, bonuses) and also your history of employment, stability of income, education, even potential for future earnings.

Credit History -- Your history of debt repayment, total outstanding debt, highest balance, and your highest monthly debt balances are all reviewed.

Assets – Consists of cash on hand, savings and checking accounts, CDs, stocks, bonds or any other type of liquid asset.

Property – The home you’re planning to buy will be appraised to determine its market value. The estimated value must be sufficient to secure the loan. Lenders will loan you no more than a certain percentage (usually 95%) of this value.

Closing Costs

You’ll also be responsible for paying fees for the loan and closing costs. These need to be paid at the time of closing unless you choose to have these included in your financing.

Closing Costs generally range between 2 and 6 percent of the mortgage loan, depending on the loan and lender. You’ll be provided with a “Good Faith Estimate” of closing costs so you can know what to expect.

“Points”, which are one time charges equal to one percent of your loan amount, may be required by your lender at closing.

Your closing agent also charges a fee at the close of the sale.

I hope this helps you gain a better understanding of the mortgage process. For more information and a FREE home buying consultation, call my office at 309-743-0110. I’d consider it a privilege to help!

Steve Fischer is a Licensed Mortgage Banker in both Iowa and Illinois. For more valuable home buying tips, call 1-800-882-1834, Ext. 2112 to get your free copy of the report, “7 Steps to Stop Paying Rent.” Or visit www.own40down.com. You’ll also get the bonus report “The 11 Most Frustrating and Costly Mistakes Home Buyers Make… And How To Avoid Them.”