When should I start thinking about financing my new home?
For best results, start planning your financial strategy when you first decide that you want to buy a home. You will need to do some or all of the following:
- Get your financial house in order.
- Determine how much you can afford to pay for a home.
- Get pre-approved for your loan.

Everything you put on your loan application should be truthful and as accurate as possible. However, there are actions that you can legitimately take to present your financial picture in the best possible light. Pay off or pay down any credit card debt as much as possible. Credit card debt reduces the amount you can borrow for your home purchase. If you owe $2,000 on your credit card, the lender will assume you have a monthly debt payment of 5% of that amount, or $100 per month payment. Minimize the use of your credit card. Pay off auto and other debt which has over 9 monthly payments left. Note: auto debt with less than 9 payments remaining will usually be excluded from your debt calculation.

First-time buyers: If you expect to receive a family gift or loan as part of your down payment, be sure it is clear whether the money received from family members is a gift or a loan. If it is a gift, lenders will usually require a "gift letter" from the donor. Lenders will be checking your bank balance for the last three months, and will notice any large increases in your balance during that three month period. Start saving even more for your down payment. Remember, there are almost always significant "closing costs" which must be paid at close of escrow, in addition to the down payment. Estimate closing costs at 3% of the purchase price.

Don't change your line of work. Lenders expect breadwinners to be in their jobs at least two years. Change to a job in the same line of work is OK, but this is not the time to make a shift to a different line of work. Do not go from a salaried position to a "self-employed" status! Income figures from self-employment are often averaged over the last two years. Hold off on large purchases (autos, appliances. etc.) which may increase your debt or reduce your cash reserves. Postpone these purchases until you have moved into your new home.

Can I buy a home for less than 20% down?
Yes. Many lenders will lend up to 95% of the purchase price. Some government sponsored programs will allow loans up to 95% of the purchase price.

How can I estimate my monthly payments?
The monthly payment on the loan will vary, depending upon the interest rate, and the length of the loan. (Most loans are for 30 years, but 15 years is another option.) The following chart shows the monthly payment required per $1,000 loan, assuming a 30 year loan. To estimate your payments, select the interest rate closest to the rate you expect to pay, and multiply by the number of thousands you are borrowing. (In the above example, if the interest rate was 7%, the monthly principal and interest payment for a $240,000 loan would be 240 times $6.65, or $1,596 per month.)

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