Looking at Your Mortgage Options - down payment (first step)

The first thing to think of when considering a loan for a home mortgage is the size of the down payment. How much cash can do you have that's available for long term investment in the home?

The standard is twenty percent of the purchase price of the home. If you have a twenty percent down payment (and a decent credit history) you'll be in the driver's seat regarding interest rates, terms, and other options of the mortgage. You'll be able to get a mortgage without that large a down payment, you just won't get one with terms as favorable as you'll be able to get with theat 20 percent downpayment for your home mortgage loan.

The first step in developing your options for a home purchase is to simply add up the cash you have available for a down payment. Multiply by 4. That's how much house you can afford. I'm not suggesting 5 because it's a mistake to use all the money you have available for that twenty percent down payment. You're going to need cash in reserve for unanticapated purchase expenses, move expenses, and other contingencies. So leave yourself some slack by muliplication by 4. That means you'll have an extra 5 percent of the purchase price as a cushion.

Keeping some slack in your estimates is a key factor in making sound financial plans. Always leave yourself some room.

If that amount of money (the cash you have available for a down payment times 4) will buy you enough of a house for your needs then you're in great shape as far as ability to obtain mortgage financing for your new home. Go find yourself a house.

If not, then your mortage options might be more restrictive. In the next post I'll look at a ten percent down payment.