How to Finance a Home

by eHow Personal Finance Editor

We've all heard that buying a home is the greatest single investment you'll make in your lifetime. If you are ready to buy a home, find out about the different types of financing available. From Private Mortgage Lenders to the FHA, there are many mortgages available. Here are some tips to help you finance a home.

Pre-qualify yourself. Many mortgage companies and banks will try to pre-qualify you for a mortgage. Pre-qualifying is done by a financial statement and your credit history. All sources of income are added together with assets you own. Debts you owe that are paid monthly are subtracted from the gross monthly income. This is your net income. The debt to income ratio should never exceed 25 percent to qualify for a conventional loan from a bank or lending institution. Conventional mortgage lenders also need to have a minimum of 20 percent of the sales price of the home as a down payment before they will finance your home.

Check for government programs that you may qualify for. The FHA (Federal Housing Administration) has programs for first time home buyers who can't come up with a 20 percent down payment. If you qualify, the FHA will finance your home with a down payment as low as 3 percent. Fannie Mae mortgage programs can help low income home buyers or those with credit problems. The VA (Veterans Administration) also offer veterans a no money down mortgage to finance buying a home.

Get creative with "creative financing" to finance your home. Many sellers will agree to hold a second mortgage for you; usually the difference between what the mortgage company will pay and what the selling price is. Real estate agents might agree to hold a small second or third mortgage instead of collecting their commission checks. Consider a "hard money" mortgage. This type of mortgage to finance your home usually has a higher interest rate but with less as a down payment. The down side to a "hard money" loan is the higher monthly cost of home finance. Many people begin with a "hard money" mortgage as long as it's a fixed rate. After two or three years of on time payments or verifiable income, many home owners refinance with a conventional loan. Consider a "hard money" mortgage only if there is no other alternative, and the mortgage is a fixed rate mortgage.

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