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How
much can you spend on down payment and closing
costs?
You can use all your
sources of savings minus a cash reserve as down
payment and closing costs. Typically the cash
reserve equals 2 or 3 months of housing expense
depending on the amount of down payment. Housing
expense includes your monthly loan payment
(principal + interest), property tax, hazard
insurance, and mortgage insurance when applicable.
Savings in IRA, Keogh, or 401-K plans are counted
at one half of their value when being considered
as cash reserves. All other savings are counted at
full value. |
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How
does gift money affect your purchase power?
If your down payment is less
than 20% of the purchase price, there are some restrictions
on gift money. If your loan is less than $417,000 at least
3% of the purchase price should be your own money. For
larger loans, at least 5% of the purchase price must be
your own money. |
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What
is a Prepayment Penalty?
A Prepayment Penalty
is a fee that may be charged to a borrower who
pays off a loan before a certain period of time,
generally three years. The general penalty is six
months interest on 80% of the loan balance. If you
believe you would not be paying off your loan
within the first three years, you may want to
consider loans with prepayment penalties because
they offer lower interest rates and costs. |
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