Affordability Calculator Helps Determine Down Payment

Applying for a mortgage loan can seem complicated, but mortgage lenders offer the option of prequalifying for a mortgage before shopping for a home. Why prequalify? You'll know how much you can borrow for mortgage financing, and can narrow your search to affordable homes. You'll also avoid the added stress of shopping for a mortgage after making an offer on a home. A large down payment can help you prequalify for a mortgage at favorable rates and terms.

Affordability Calculator Helps Determine Down Payment

Typically, mortgage lenders require a down payment ranging from 3 to 30 percent of the value of the home you buy. The down payment is in addition to lender fees and charges and other closing costs. Before starting the prequalification process, you can use an affordability calculator to estimate how much you can afford to borrow and determine the amount you'll need for a down payment. An affordability calculator is easy to use. You enter the amount of mortgage payment that you want to pay, an interest rate, and the length of the mortgage loan. The calculator provides a mortgage amount. Keep in mind that calculator tools are meant to provide estimates only, and the information provided does not include additional costs such as property taxes and insurance, homeowners' association fees, or mortgage insurance premiums.

Down Payment Benefits

Until recently, consistently rising home prices in many areas have made it difficult for homebuyers to make significant down payments; those who are in a position to do so can benefit from making a larger down payment:

• Reduce the amount of mortgage loan and monthly payments
• Acquire "instant equity" Equity can protect you if home values decrease. Borrowers who make very small down payments can risk owing more than their homes are worth if property values decrease.
• Lower lender risk: A down payment reduces lender risk and may lead to more favorable interest rates or other loan terms.
• Making a down payment can help offset credit problems: If you have a spotty credit history, making a large down payment can help reduce mortgage finance charges.
  

If you can't make a large down payment, it's possible to find mortgage loans requiring as little as 3 percent down. Community homebuyer programs may also offer first time buyers down payment assistance. It's important to determine affordability before shopping for a home. Mortgage lenders can help, but doing some advance research using an affordability calculator can help you save time, money and most importantly, help you decide if you are ready to buy a home.

About the Author

Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage lending. She holds BA and MA degrees in English from the University of Nevada, Reno.