Financing: 17 Ways To Maximize Your Buying Power

For most of us, shopping for a new home also means shopping for a home mortgage. In both exercises, you'll want to be a smart shopper. Working with a real estate agent, you can find a house you'll love. And while it's not likely you'll actually "love" your new mortgage, here are seven secrets to make sure your financing needs and the lender you're considering are a good match. Then see the box inside about finding the right mortgage for you and for more tips on how you can buy more house for less money, call today!

Mortgage Pre-Approval
A no-cost, no-obligation pre-approval before you start house-hunting can save you big time; the seller knows you're a "cash buyer" and may favor your purchase offer over another. Find a lender who offers pre-approval. That's not the same as "instant approval," which is often an approval loaded with qualifications; or a how-much-can-I-afford "pre-qualification" estimate, which doesn't give you the same bargaining clout.

Quick Loan Processing
Some lenders offer mortgage approval in just 5 to 7 days and others use electronic underwriting to give same-day approval. Ask. This quick turnaround could get you to settlement sooner, which may make you the most attractive potential buyer to your seller and may mean less time in temporary housing.

Flexible Underwriting Guidelines
Some lenders, for instance, count the earnings of a spouse who doesn't yet have a job in the new location but has at least a two-year work history. That kind of flexibility may make you eligible to purchase the home you want.

Variety Of Mortgage Products
Perhaps you’ll do best with a short-term mortgage or an adjustable-rate loan. Find a lender who offers a selection of mortgages and even unique mortgage products that suit your situation best.

Rate-Lock Options
Find out what rate-lock options are available from the lender.  The shorter the lock time – that is, the shorter between when you agree on a mortgage rate and when you actually go to settlement – the lower the interest rate you’ll have to pay.

Negotiable Loan Fees
Shop for a lender whose fees are reasonable. Ask about all charges, such as a “commitment fee” or “underwriting fee” or “processing fee.” Mortgage lending is a competitive business and lenders sometimes will negotiate fees to get your business.

Teamwork Pays Off

Every purchase requires an effective three-member team: buyer, real estate agent and mortgage lender. Work together with a real estate agent who specializes in your area to find the house that’s right. Team up with a lender who can make sure your loan maximizes your buying power and is right for you. Make the most of your home-buying team and everybody wins.

10 Different Ways To Buy A House Today

Different buyers have different mortgage needs. Fortunately, lenders today offer many mortgage options to choose from. Chances are you'll find a mortgage plan that works for you.
Because points, fees and interest rates vary, check with a real estate agent or your lender for specific information on the type of loan you are considering. The "snapshot" interest rate examples shown here are for illustrative purposes only and may not reflect current rates. For simplicity, all examples here use a $100,000 sale price. Monthly payments are for principal and interest only (taxes, insurance and condo/homeowner fees would be additional).
Adjustable Rate Mortgage: The interest rate is adjusted up or down periodically based on a financial market index (such as Treasury bills). Monthly payments start lower than for fixed-rate mortgages. The initial rate is set for a specified period-1, 3, 5, 7, or 10 years-and then rates adjust on a schedule, say, annually. The adjustments generally are limited by annual caps and a life-of-the-loan cap.

Down Payment: $10,000
Mortgage Amount: $90,000
Term Of Loan: 30 years
Interest Rate: 7% (until first rate adjustment)
Monthly Payment: $599 (until first rate adjustment)

Fixed-Rate 30-Year Conventional Mortgage
A fixedrate conventional loan is made by a commercial lender for 30 years. Monthly payments (excluding taxes, insurance) remain unchanged for the life of the loan. Most lenders allow mortgages with as little as 5% down, but require private mortgage insurance for loans with less than 20% down.

Down Payment: $10,000
Mortgage Amount: $90,000
Term of Loan: 30 years
Interest Rate: 8 ½%
Monthly Payment: $692

Fixed-Rate 15-Year Conventional Mortgage
Similar to the 30-year conventional mortgage, except the loan is repaid in half the time. Interest rates are typically lower than for a 30-year loan, and interest paid over the life of the loan is less, but the monthly payments are usually slightly higher. Government-backed loans-VA and FHA-are also available in 15-year terms.

Down Payment: $10,000
Mortgage Amount: $90,000
Term of Loan: 15 years
Interest Rate: 8 ¼%
Monthly Payment: $873

Two-Step Loan
This 30-year loan is a cross between the ARM and conventional loans. The mortgage carries a fixed rate for 5, 7 or 10 years and then adjusts to market interest rates once for the remainder of the loan. The initial rate is generally lower than a fixed-rate conventional mortgage, but the second step of the two-step mortgage is often conditional on the lender's approval.

Down Payment: $10,000
Mortgage Amount: $90,000
Term of Loan: 30 years
Interest Rate: 8 ½% (for first of 2 steps)
Monthly Payment: $668 (until adjustment)

Federal Housing Authority (FHA) Loan
Government insured loans so homeowners can make a smaller down payment than on conventional loans. The limits on FHA loans are high enough to handle moderately priced homes in many parts of the country. FHA loans are assumable for future buyers who qualify.

Down Payment: $4,500
Mortgage Amount: $95,500
Term of Loan: 30 years
Interest Rate: 8 ¼%
Monthly Payment: $717

VA Loan
Loans for qualified veterans backed by the Department of Veterans Affairs with low or no down payment required. These mortgages are subject to the VA mortgage funding fee, a premium of up to 1% of the loan amount, depending on the size of the down payment. VA loans can be combined with second mortgages and are assumable to qualified buyers.

Down Payment: None
Mortgage Amount: $100,000
Term of Loan: 30 years
Interest Rate: 8 ¼%
Monthly Payment: $751

Seller Financing
Sellers may take back a loan against their equity in the property in the form of a first or second mortgage. One approach to owner financing is to use a balloon mortgage calculated and repaid for 5 or 7 years as a 30-year mortgage, but then the balance of the loan is due in a lump sum.

Down Payment: $15,000
Mortgage Amount: $85,000
Term of Loan: 5 years
Interest Rate: Negotiable
Monthly Payment: Depends on rate

Assumable Mortgage
A buyer takes over the existing mortgage-usually FHA, VA or ARM - at its current interest rate, with the concurrence of the lender. An assumption may have a lower rate than those currently available, and taking over the mortgage may save on closing costs. The down payment makes up the difference between the sale price and the balance on the loan.

Down Payment: $30,000
Mortgage Amount: $70,000
Term of Loan: Time remaining on loan
Interest Rate: Same as seller had
Monthly Payment: Same as seller was paying

Wrap-Around Mortgage
A new mortgage incorporates an older, assumable loan to help bridge the gap between the loan balance and home sale price. The interest rate is often below market, but higher than the rate the old mortgage carries. Payments are made to the new lender or the seller, who forwards part of the payment to the first lender. The term of the mortgage is the time remaining on the original loan.

Down Payment: $10,000
Mortgage Amount: $90,000
Term of Loan: Time remaining on original loan
Interest Rate: 9%
Monthly Payment: $724

Buy-Down Mortgage Plan
The seller or a third party provides additional cash to the lender in exchange for a lower interest rate for the buyer. Approaches vary among permanent buy-downs, multi-year and graduated plans.

Down Payment: $10,000
Mortgage Amount: $90,000
Term of Loan: 30 years
Interest Rate: 6 ½  (initial)
Monthly Payment: $568 (until subsidy diminishes or expires)

MONTHLY PAYMENT

How much can you afford monthly?

Lenders will usually allow you to spend 28% of your total – or gross – monthly income to make mortgage payments of principal, interest, taxes and insurance. The table below shows how much 28% is at various income levels.

Annual Income	Gross Monthly Income	Affordable Monthly Payment**
$20,000	$1,667	$467
$25,000	$2,083	$583
$30,000	$2,500	$700
$35,000	$2,917	$817
$40,000	$3,333	$933
$45,000	$3,750	$1,050
$50,000	$4,167	$1,167
$60,000	$5,000	$1,400
$70,000	$5,833 $5,833	$1,633
$80,000	$6,667	$1,867
$100,000*	$8,333	$2,333

*For incomes over $100,000, add together the two appropriate columns.

LOAN AMOUNT

How much can you plan to borrow?

Once you know how much you can afford monthly, use this table to calculate how much you can borrow. Add your down payment to get an approximate house-hunting price range.

Monthly Payment**	5%	7%	9%	11%
$467	86,995	70,194	58,040	49,038
$583	108,603	87,630	72,457	61,219
$700	130,399	105,216	86,998	73,505
$817	152,194	122,802	101,539	85,791
$933	173,803	140,237	115,956	97,971
$1,050	195,598	157,823	130,497	110,257
$1.167	217,393	175,409	145,038	122,543
$1.400	260,797	210,431	173,995	147,009
$1.633	304,201	245,453	202,953	171,476
$1.867	347,791	280,625	232,035	196,047
$2.333	434,599	350,668	289,951	244,980

**Principal and interest only, taxes, insurance and any homeown­er fees not included These will raise your monthly payment and reduce the amount of principal and interest and total loan amount you can afford. Loan amounts are based on a 30  year fixed-rate mortgage. For incomes over $100.000, add together the two loan amounts and add your down payment.