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like the borrower’s. Also, their documentation will be scrutinized as carefully as
the borrower’s, so be sure that any co-signer you use has their documentation
in order and is prepared to share it. Another consideration is that missed
mortgage payments will adversely affect the co-signer’s credit as well.

The co-signer will need to be present at closing, or prepare a Power of
Attorney document that allows someone else to sign in his place.

One drawback of having someone co-sign on a loan is that many special
mortgage programs, such as Citizens in Action or TD First Time Home Buyer’s
program, will not offer their reduced rates on loans with co-signers.

How Much Will You Put Down?

Just how much of a down payment should you plan to put down? With a smaller
down payment, your initial cash outlay will be less, but your monthly payment
will consequently be higher. Also, many lenders will require you to purchase
private mortgage insurance (PMI) if you put down less than 20%, which
protects them from loss in case you default on your payments. PMI usually
costs between .5%-1% of the loan value on an annual basis, so a $200,000
loan might incur an additional annual PMI cost of $1,000-$2,000, or up to
about $166 extra a month. This expense has the additional disadvantage of
increasing the debt factored into the Debt-to-Income (DTI) determination,
which could result in a rejection of the application.
The “magic number” for down payments that most people are familiar with is
20%. This number is ideal for a number of reasons:
‹ Mortgage lenders view the transaction as lower risk, thus allowing you
to qualify for the best possible mortgage rate based on your income and
credit history.

‹ Your monthly payment will be lower if your total loan amount is smaller.
‹ Lenders will not require the added expense of Private Mortgage Insurance.
‹ FHA Loans: For some, who are sure they can afford the costs of home
ownership but don’t qualify for a conventional loan, FHA loans, secured by
the Federal Housing Administration, can be a viable alternative. However,
because of the very high insurance costs associated with these loans,
they are generally only recommended for buyers with no other options.
Once you have determined how much you are prepared to spend on a house,
you are prepared to embark on the house hunt.

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