First Time Home Buyers - Step 4

Are you on brain overload yet? I hope not because I'm just getting started! Ok so in step 3 we found out how much of a loan you could afford and, with your desired down payment, how much of a purchase price you can afford. BUT, you can't just rely on how much you want to put down. With lending on a rise there are so many different types of programs that all require different types of down payments. Let's start at the top and work our way down. I am going to share with you just the top few programs and then we will calculate how much of a home based off of each senerio you can buy.

Before I get started I want you to know that I am going talk about down payments a lot. For the sake of easy reading we are going to just find out the purchase prices first and in step 5 we will go over what the down payment and closing costs as well as mortgage payments consist of.

1st despite popular beleif there are programs that allow for 100% financing, this means that you do not have to put any money down! To find out more information about these programs you can visit the following web site at USDA The USDA department, or Rural Financing, is a department that tries to help populate land in areas underpopulated. You can visit their site and search for areas to find out where you can buy homes that can by 100% financed.

If you go with the USDA program what ever your answer was for the loan amount is also the amount of your purchase price, 100%! EASY calculation.

Ok so the next program is FHA. You probably have all heard of FHA but many of you don't really know what it means. FHA is amazing! My home was bought using FHA financing. Generally people with lower amounts of money available for a down payment or lower credit scores will go with the FHA programs. With this program you are only required to put 3.5% down to buy the home, now this can change so make sure you check on the current guidlines with your lender. Also, if you have lower credit scores or credit problems they will allow for approvals with out your interest rate being effected by your low credit score. When I first bought my home my credit score was so bad that I couldn't even get a car loan but when I got my home I was approved for a loan at 5%!!!! This was amazing!

To find out how much of a purchase price you can afford all you need to do is take your loan amount that you calculated in Step 3 and divide it by 96.5% (100% - 3.5%). In my example where the loan amount was 145,454.55 our purchase price would be 150,730.10 (if you got a really amall number then all you did was forgot to push the percentage sign, if that's the case just multiply your answer by 100 and you will get the correct amount).

Now that we've looked at the two special programs let's look at the Conventional side, the easiest way to explain conventional loans is for me to tell you they are the cookie cutter loans. They are usually all the same. They have 5% or more down payment, preferrably higher credit scores, lower debt to income ratios, and they are usually pretty quick loans from begenning to end.
To find out how much of a purchase price you could qualify for you are going to use the same equation as above except change the down payment amount to anything 5% or more. For my example I will use 20% down. For our example of 145,454.55 I am going to divide that number by 80% (100% - 20%) this would give us a purchase price of 181,818.19.

WOW, so let's re-cap what we have learned through the first 4 steps:
1st you found out how much your debit to income was
2nd you found out how much of a mortgage payment you could afford
3rd you found out how much of a loan amount you could afford
4th you found out how much of a purchase price you could afford

Congradulations you have completed Step 4!!!!!

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