To be considered for a mortgage, you generally have to meet two conditions before the Lender checks your credit. You must be able to afford the monthly payments of principal, interest, taxes and insurance (PITI), homeowner’s or condominium association fees, and you must have an adequate down payment. Below is a guideline of what you can afford and how some Lenders make this decision.
Check with your loan officer to determine the prevailing interest rates, required down payment percentage, and loan term. Typically, in addition to the mortgage you borrow from a Lender, you may be required to make a down payment - a percentage of the purchase price you must pay in cash. There are a myriad of loan programs available. Work with your Agent, loan officer or loan broker to find out which program best suits your needs.

Two Lender Formulas
Two Lender Formulas Most lenders will require that loan applicants meet both guidelines before approving a mortgage loan. The first formula compares income to housing costs without including long term debts, the second includes all debts.

28% Formula
Total Monthly Housing Costs
(P.I.T.I.)
__________________ = 28% (or less)
Gross Monthly Income

36% Formula
P.I.T.l. + All Monthly Debt Payments
__________________ = 36% (or less)
Gross Monthly Income

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If you have a mortgage, your lender probably required you to obtain some level of homeowners insurance coverage. However, you'll want to make sure that the amount of coverage that you have will adequately protect you for all possible losses.

What is homeowners insurance?
Homeowners insurance provides financial protection against disasters. A standard policy insures the home itself and the things you keep in it.

Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability or legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused by household pets.

Damage caused by most disasters is covered but there are exceptions. The most significant are damage caused by floods, earthquakes and poor maintenance. You must buy two separate policies for flood and earthquake coverage. Maintenance-related problems are the homeowners' responsibility.

What is in a standard homeowner's insurance policy?
A standard homeowner's insurance policy includes four essential types of coverage. They include:
1. Coverage for the structure of your home.
2. Coverage for your personal belongings.
3. Liability protection.

Additional living expenses in the event you are temporarily unable to live in your home because of a fire or other insured disaster.

A Few Ways to Save on Your Homeowner's Insurance
1. Shop Around
2. Raise Your Deductible
3. Don't confuse what you paid for your house with rebuilding costs
4. Buy your home and auto policies from the same insurer
5. Make your home more disaster resistant
6. Improve your home security
7. Seek out other discounts
8. Maintain a good credit record
9. Review the limits in your policy and the value of your possessions at least once a year
10. Look for private insurance if you are in a government plan

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When you purchase your home expect to get a supplemental property tax bill from the county tax collector. This bill is for the difference between the amount of tax the former owner paid and the amount you will be paying, prorated according to when you bought the house.
Remember to budget for property taxes. One of the joys of homeownership is getting to deduct what you pay in property taxes each year from your taxable income. But one of the despairs is having to pay the tax bill in the first place.

Property taxes amount to about 1.25% of the sales price of your home. On a $600,000 home, that's $7,500 annually in property taxes, made in two payments. The first installment is due Nov. 1 but not late until after Dec. 10; the second payment is due Feb. 1 but not late until after April 10.

Consider setting up a reserve account to help save enough for taxes and insurance. Training yourself to save enough money to pay these bills when they come due is hard, but setting up a reserve account when you get the mortgage will help.

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Today's homebuyer has more financing options than have ever been available before. From traditional mortgages to adjustable-rate and hybrid loans, there are financing packages designed to meet the needs of virtually anyone.

While the different choices may seem overwhelming at first, the overall goal is really quite simple: you want to find a loan that fits both your current financial situation and your future plans. Though this article discusses some of the more common loan types, you should spend time talking with different lenders before deciding on the right loan for your situation.

General categories of loans
Most loans fall into three major categories: fixed-rate, adjustable-rate, and hybrid loans that combine features of both.

Fixed-rate mortgages: As the name implies, a fixed-rate mortgage carries the same interest rate for the life of the loan. Traditionally, fixed-rate mortgages have been the most popular choice among homeowners, because the fixed monthly payment is easy to plan and budget for, and can help protect against inflation. Fixed-rate mortgages are most common in 30-year and 15-year terms, but recently more lenders have begun offering 20-year and 40-year loans.

Adjustable-rate mortgages: (ARM)Adjustable-rate mortgages differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments (i.e. no more than 2 percent a year), as well as a ceiling on how much the rate can go up during the life of the loan (i.e. no more than 6 percent). With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.

Hybrid loans: Hybrid loans combine features of both fixed-rate and adjustable-rate mortgages. Typically, a hybrid loan may start with a fixed-rate for a certain length of time, and then later convert to an adjustable-rate mortgage. However, be sure to check with your lender and find out how much the rate may increase after the conversion, as some hybrid loans do not have interest rate caps for the first adjustment period. Other hybrid loans may start with a fixed interest rate for several years, and then later change to another (usually higher) fixed interest rate for the remainder of the loan term. Lenders frequently charge a lower introductory interest rate for hybrid loans vs. a traditional fixed-rate mortgage, which makes hybrid loans attractive to homeowners who desire the stability of a fixed-rate, but only plan to stay in their properties for a short time.

FHA and VA loans: U.S. government loan programs such as those of the Federal Housing Authority (FHA) and Department of Veterans Affairs (VA) are designed to promote home ownership for people who might not otherwise be able to qualify for a conventional loan. Both FHA and VA loans have lower qualifying ratios than conventional loans, and often require smaller or no down payments.

Bear in mind, however, that FHA and VA loans are not issued by the government; rather, the loans are made by private lenders but insured by the U.S. government in case the borrower defaults. Remember too, that while any U.S. citizen may apply for a FHA loan, VA loans are only available to veterans or their spouses and certain government employees.

Conventional Loans: A conventional loan is simply a loan offered by a traditional private lender. They may be fixed-rate, adjustable, hybrid or other types. While conventional loans may be harder to qualify for than government-backed loans, they often require less paperwork and typically do not have a maximum allowable amount.

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What is Private mortgage insurance (PMI) Insurance
Provided by nongovernmental insurers that protects lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80%. PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

Benefits of PMI
PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment. Typically, you must pay for PMI for two years, or until you have 20 percent equity in the home, whichever comes last. This can sometimes be avoided up front by having two mortgages, one for 80 percent of the home's price, and another for the difference between the home's price and your down payment.

When PMI can be cancelled
Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

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Their are plenty of fees that you may have to pay at your closing/settlement. All closing costs are spelled out in the lender's Good Faith Estimate this is only an estimate and the actual charges may differ. RESPA allows the borrower to request to see the HUD-1 Settlement Statement that shows all actual charges imposed on borrower in connection with the settlement one day before the settlement. Here's an example of typical cost you can expect to pay: Loan origination fee (also called points)

Closing fee

Homeowners Insurance

Legal Fees

Property Taxes

Title Search and Title Insurance

Inspections

Prepaid Loan Interest

Private Mortgage Insurance

Survey Fee

Notary Fee

Overnight/courier fee

Recording

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