Buying your dream home is expensive, when you consider the whole amount of money you need to invest. Take a deeper insight; consider the monthly rent you have to bear if you do not own a house and how much you can save by having your own house. This, apart from tax deducibility and other advantages would certainly show that buying a house is beneficial over renting.

How should you move forward?

Discuss about your home loan or mortgage requirement with a qualified loan agent. A qualified mortgage lender will help you figure out some best options. For example, some special category home loans such loans offer greater advantage to homebuyers and you need to check out which loan you are eligible for.

Decide upon the purchase price before anything else. This includes down payment, monthly installments, interest, and other variable payments. Typically, purchase price that you will be able to afford would depend on 3 main factors:

• Your income and how much other debt you owe.
• How much you have for a down payment and for closing costs.
• Your credit history

Home buying loans terms

Three most important terms that you will encounter often:

• Loan-to-Value (or LTV) - This is the loan amount as a percentage of the purchase price or appraised value. LTV is calculated on a ‘whichever is less’ basis. Consult your mortgage agent to know about the intricacies of LTV.
• Housing Ratio-This is calculated by adding the monthly housing expense (principal, interest, tax, insurance, and PMI and homeowners dues (condominiums if applicable) and then dividing it by the gross monthly income.
• Gross Income refers to income before deductions and may vary depending on your type of employment. The Gross income is easy to determine for those in a W2 job, however, for self-employed, you would need to calculate it from the Schedule C onto line 12 of your 1040.
• Debt Ratio-This is the addition of monthly housing expenses. This will include monthly installment payments, and recurring debts. Expenses incurred through support, alimony, or separation maintenance are also included in Debt Ratio.

Note that any debt with fewer than 10 months to go does not count. In addition, such debts incurred through purchases where payments can be deferred after a year does not count as long as there are 12 months to go without payments. The same applies for student loans.

Your income and credit determine the size of the home loan or mortgage loan for which you qualify. Cash is usually needed for three things:

• Down Payment- You pay this amount at the time you purchase the house. Down payment depends on a number of factors such as your income, debts, and more.
• Closing Costs- Closing costs constitute a major share of total cost incurred and cannot be neglected or left unaccounted for as it may lead to severe financial crisis. Ideally, as a homebuyer, you need to cover all one time or "non-recurring" closing costs, "recurring" closing costs: prepaid interest, insurance, impounds if there is PMI and potential prorated property tax.
• Reserves- Reserves refer to what you have in your bank. You should be able to show at least $10.00 in your bank after the purchase. We account for 2 months (PITI) of any homebuyer’s total monthly housing expenses in reserve. This is to make sure that you get together all of the cash necessary to close.

Once your eligibility has been determined and we are clear about the size of the loan you will be able to qualify for and where the money is coming from we will determine how expensive a home you can afford.