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Generally speaking, the more money
you put down, the lower your mortgage. You can
put as little as 3% down, depending on the loan,
but you'll have a higher interest rate.
Furthermore, anything less than 20% down will
require you to pay Private Mortgage Insurance
(PMI) which protects the lender if you can't
make the payments.
Also,
expect to pay 3% to 6% of the loan amount in
closing costs. These are fees required to close
the loan including points, insurance,
inspections and title fees. To save on closing
costs you may ask the seller to pay some of
them, in which case the lender simply adds that
amount to the price of the house and you finance
them with the mortgage. A lender may also ask
you to have two months' mortgage payments in
savings when applying for a loan.
A
lender will look at your income and your
existing debt when evaluating your loan
application. They use two ratios as
guidelines:
Housing expense ratio. Your
monthly PITI payment (Principal, Interest, Taxes
and Insurance) should not exceed 28% of your
monthly gross income.
Your long-term debt (any debt that will
take over 10 months to pay off - mortgages, car
loans, student loans, alimony, child support,
credit cards) shouldn't exceed 36% of your
monthly gross income.
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