Purchasing a home can be an exhilarating experience. It can also be stressful. Unless you're a cash buyer, buying a home involves a number of steps. You must find a home to buy, negotiate with the seller and enter into a contract. You must conduct due diligence and obtain inspections, appraisals and termite reports. You must engage with a mortgage lender to process and underwrite the mortgage loan. At closing, you must have the funds for the down payment and all the related loan and closing costs.
Maximum Loan Percentages
The maximum amount you can borrow for a mortgage depends on whether you use a government-guaranteed mortgage program or a conventional mortgage. Some government agencies like the USDA and the VA provide mortgage loans up to 102 percent and 100 percent, respectively, of the appraised value. FHA-backed mortgage loans can be a maximum of 97 percent. Conventional loans typically finance 80 percent of the loan value, although these are often packaged with a second mortgage that may provide an additional 10 to 15 percent of the loan value, for a combined loan maximum of 90 to 95 percent.
Roll Fees Into Mortgage
To reduce the amount of out-of-pocket fees that you must pay, you can roll a number of the loan-related fees and closing costs into your mortgage loan amount. Most lenders or loan guarantors allow you to add origination fees, points, title search fees, appraisal costs, and legal fees. You can typically add these fees up to the loan-to-value percentage the lender has agreed to. You can't add any fees that would increase the total loan amount over the appraised value.
Down Payment Assistance Programs
If your household income is at 40 to 120 percent of area median income, you may qualify for government-backed down-payment assistance programs. These programs provide funds for down payments up to several thousand dollars. They are often packaged as 0 percent interest, forgivable loans. This means that the loan is forgiven over a period of time as long as you reside in the home. If you sell the home before the period expires, you would have to repay the remaining portion of the loan from the sales proceeds.
Loans or Gifts From Family and Friends
Some lenders allow you to receive gifts from family or friends to fund your down payment. Some also allow you to fund a portion of your down payment via loans from the same individuals. However, if you tell the mortgage lender that your down payment source will be a loan, the lender will factor that loan into your overall debt-to-income ratios. If the down payment loan will put you out of the lender's "comfortable" range -- for example, over 35 to 40 percent -- the lender will either disallow the down payment or rescind your loan approval.
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