Mortgages

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Finding the right mortgage is as important as finding the right house. Both of them can have a considerable impact on how comfortably you live. Before you start looking for a home or a mortgage, you'll need to figure out how much you can afford.

The two main considerations in this equation are:
• How much money you have for the down payment
• How much you'll need to borrow

In today's market, down payments are generally 5% to 25% of the cost of a home. Buyers then borrow the remaining 75% to 95%. The amount you are eligible to borrow is, for the most part, determined by the size of the monthly payment you can afford. As a general rule, your lender will not allow your housing payment to exceed 25% to 33% of your gross monthly income, including payment of principal and interest, and may limit all long-term debt payments to 36% to 38% of your gross monthly income.

To figure out how much you can afford, take a careful look at your current assets (including income, savings, investments, life insurance, pensions, corporate thrift plans, and equity in other real estate, etc.) and your liabilities (including outstanding loans, credit card balances, etc.).

Next, think about how your income—or household income if there are two wage earners in the family—might change over the next several years. Use this information to decide on the best mortgage for you. Although there are no hard and fast rules, generally speaking, if you anticipate a fairly constant income level, you may prefer a fixed-rate mortgage. If, however, you expect annual income increases (i.e., greater than cost-of-living increases) you may want to maximize your buying power with an adjustable-rate mortgage.

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