THE CLARKE AGENCY, INC.

Have you ever wondered what size home you are capable of buying? Buying a home involves three elements that are essential in the purchasing of a home: qualifying for a mortgage, the down payment, and closing costs. Unless a purchaser knows what size mortgage is needed, the down payment, and an estimate of closing costs, and what size loan he/she can qualify for, the purchaser can't really begin an efficient housing search.

Loan qualification - Determining the size of a mortgage for which you qualify is based primarily on your income, debt/expenses, and current interest rate. The higher the interest rate, the higher the monthly payment. The higher the monthly payment, the more income you will need to qualify for a specific loan.

Therefore, given your income and debt as constants, the higher the interest rate, the smaller the loan or mortgage you will be able to afford. With interest rates relatively low, you can purchase more home with your current income.

For conventional financing, lenders generally limit the monthly home mortgage payment to 28% of your gross monthly income and your total debt to 36% of your gross monthly income. FHA and VA loans tend to be more lenient.

Down payment - The amount of the down payment you will need depends on how the transaction to purchase a home is structured and the type of financing you will obtain. Typically, conventional lenders require a 20% down payment, although in some cases, loans with down payments as low as 10% may be obtained.

Usually, FHA financing requires down payments of less than 5%, and VA loans often require no down payment. If a down payment is less than 20%, the purchaser will likely have to pay for private mortgage insurance, which guarantees that the lender will be repaid in case of default.

Closing costs - Closing costs, paid at settlement or "closing", vary considerably. However, the most common costs include appraisals, credit reports, fees for title insurance, escrow requirements, various document recordings, document preparation, loan underwriting, and discount points (one point equals 1% of the loan amount).

When you know how much you can afford, you are in a better position to purchase a home. Buying a home does require some financial resources, but, when you are a knowledgeable purchaser, you can make the maximum use of your money to get the home you want.

The Clarke Agency, Inc.
241 N. Main Street
P. O. Box 1067
Gunnison, CO 81230

Phone: (970) 641-0511
Fax: (970) 641-9252
Email Clarke Agency