Click icon to add picture

FINANCE FOR BUYERS

The price you can afford to pay for a home will depend on several factors, including:

• Gross income• Your debt• Your credit history• The type of mortgage you select• Current interest rates• Funds available for down payment, closing

costs and cash reserves required by the lender

Another figure that lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense.

It is a good idea to pre-qualify with a mortgage lender early. This will give you the clearest idea of what you can afford, as well as provide you with clout and the capability to back up your offer.

WHAT CAN YOU AFFORD?

It’s a good idea to know your credit score. The better your credit, the better the lending terms you’ll receive if and when you decide to apply for a mortgage or refinance.

You should be aware of what information is on your credit report by obtaining and reviewing copies of your credit report from the three main credit report agencies.

Remember that there are several factors that affect your credit report including your payment history, your current ratio of debt to income and signs of responsibility and stability. And since not all creditors report to all three agencies, it’s best to order a report from all three institutions.

Your goal in ordering all three credit reports is to make sure that all of the information stated on each report is accurate and correct.

EQUIFAXwww.equifax.com1.888.766.0008

TRANSUNIONwww.transunion.com

1.800.888.4213

EXPERIANwww.experian.com

1.888.397.3742

YOUR CREDIT SCORE

OPEN A BANK ACCOUNT and use it responsibly. This is the first step in establishing a financial history.

GET A CO-SIGNER. A good way to establish credit is to piggy-back on someone who already has a good credit history established and is wiling to co-sign, but be aware that any default of credit on your part affects the credit of the co-signer.

SECURED CREDIT CARD. Apply for a credit card. Shop around and only apply for a card if you can meet the lender’s requirements. Responsible use will help you build a good credit history.

DEPARTMENT STORE AND GASOLINE CREDIT CARDS. Since gasoline credit cards are not revolving (cannot carry a balance forward month-to-month), often they are easier to obtain than regular credit cards. Similarly, some department stores offer revolving credit for a specific purchase and this is sometimes easier to obtain. It is also a great way to establish credit.

TIPS FOR ESTABLISHING CREDIT

CONVENTIONAL LOANS: Not made by or insured by a government entity. Conventional loans are ideal for borrowers with excellent credit who can afford a down payment of 5% or more.

FHA LOANS: A popular choice for first time home buyers. Benefits include a low down payment that can come as a gift, competitive interest rates, easier to qualify with less than perfect credit, options to avoid foreclosure in times of distress.

VA LOANS: Available exclusively to Qualified Veterans, active duty personnel, Reservists/National Guard members and some surviving spouses. Benefits include no money down, competitive interest rates, seller can pay up to 4% of the purchase price, and no PMI.

FIXED RATE vs ADJUSTABLE: With a fixed rate loan, the payment never changes for the entire duration of your mortgage. The longer you pay, the more of the payment goes toward principal. Adjustable rate mortgages (ARMs) are normally adjusted every six months based on various indexes. Some feature a rate cap. ARMs can be risky when housing prices go down because homeowners could be stuck with increasing rates if they can’t sell or refinance with a lower property value.

LOAN OPTIONS

Though most buyers don’t buy a home with all cash, anyone considering such a move may be wondering how it’s done.

Because all cash buyers sidestep the time-consuming loan qualification process, the deal can close very quickly. The primary advantage of buying a home with cash is completely avoiding mortgage interest. Buyers also save money that would be spent on loan origination fees, required appraisal, some closing costs and various other charges imposed by the lender.

Take a look at other investments that are doing well and determine if spending cash on a home is your best investment option.

BUYING WITH ALL CASH

Have extra cash? Should your invest it or use it to pay down your mortgage? When you pre-pay part of your mortgage, you end up paying less in interest. But as a result, you also lose part of your motgage-interest tax break.

Your true savings, then can be expressed as a difference between your mortgage interest rate and the rate at which you take your deduction (a function of your marginal tax rate). If that net percentage figure is less than the amount you could make investing the cash, you’re better off investing it.

PAY DOWN YOURMORTGAGE OR INVEST?

If you put less than 20 percent down on a home mortgage, lenders often require you to pay monthly for Private Mortgage Insurance (PMI).

Your PMI can often be cancelled when you reach 20% equity based on the original property value. Contact your mortgage company to determine eligibility and procedure.

*The reductions do not apply to government-insured FHA or VA loans.

REDUCE YOURMORTGAGE PAYMENT

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash while you retain home ownership. Reverse mortgages work much like traditional motgages, only in reverse. Rather than making a payment to your lender each month, the lender pays you.

Unlike conventional home equity loans, most reverse mortgages do not require any repayment of principial interest, or servicing fees for as long as you live in your home. If you are age 62 or older and are “house rich, cash poor,” a reverse mortgage may be an option to help increase your income.

EVER HEAR OFREVERSE MORTGAGE?