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Our home planning centers: 

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home affordability tips

First step, start saving your money

or the down payment and closing costs. You will need at least 5% of the home purchase price for your down payment; and you will need another 5-6% of the home purchase price for closing costs.

(Note: there are mortgage plans that have zero down and zero closing costs, but these type mortgage loans are very costly)

Set up a spending plan where you can set aside savings:

tools: link to our budget planning module

We have more information on full costs:
view our information on the full cost of a mortgage


How to increase your savings?

Establish a monthly budget:
tools: download budgeting forms

Reduce your monthly costs:
tools: view lowering your bills guide


Note that the IRS allows first-time home buyers to use retirement savings for purchasing their first home:

IRS rules allow for an one-time distribution from qualified IRA accounts without the 10% penalty for acquisition of a home for first-time home buyers.

See IRS publication 590 for information:

We quote from the IRS web site:

401(K) Plans:

Can I withdraw funds penalty free from my 401(k) plan to purchase my first home?

If you are less than 59 1/2 years of age, you cannot withdraw funds from your 401(k) plan to purchase your first home without being subject to a 10 percent additional tax on early distributions from qualified retirement plans.

However, depending on the rules for your 401(k), you may be able to borrow money from your 401(k) to purchase your first home. Your plan administrator should have written information about your particular plan that explains when you can borrow funds from your 401(k) as well as other plan rules.

Topic 424, 401(k) plans


If I can't withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over into an IRA and then withdraw that money to use as my down payment?

Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into a IRA and you meet all of the qualifications for an IRA distribution for a first-time home buyer. Your plan administrator is required to notify you before making a distribution from your 401(k) plan whether that distribution is eligible to be rolled over into an IRA.

To see if you qualify for a distribution to be used as a first-time home buyer, refer to Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs).


If you qualify, additional sources of money for purchasing a home can come from:

  1. federal government programs: link to HUD
  2. State or local government agencies: view state
  3. government agencies: FHA / VHA / RHA
  4. employers and/or private foundations
  5. family members donating a "gift":

    usually the mortgage lender requires a gift letter verifying that the gift is not a loan and that you do not have to repay it.


Depending on your financial status, you may qualify for mortgage loan products that require little or no down payment:

for more information about these individual mortgage loan products:


This might be a good time to review mortgage loan options that are available:


Depending on the market, you might be able to afford a home mortgage if interest rates are low and dropping.

Keep your eye on the movement of interest rates and be ready to start the process your application if interest rates meet financial hurdles.



Learn how best to negotiate interest rates

Lenders charge rates based on your credit, LTV position, debt ratio and other. So learn how to best negotiate your rate to ensure you land the best rate available:

tips: negotiating mortgage rates


You will need to establish good credit in order to qualify for home mortgage financing.

Link to our affiliated Credit Management Center on building and sustaining good credit.

(opens new window)

Topics covered:

  • establishing good credit
  • maintaining good credit
  • repairing your credit
  • checking your credit


Make sure that you have a clean credit report prior to submitting your mortgage application.

It will prevent delays and non-approvals. We have some valuable quick notes for review:

checking your credit report:
what's in your report - repairing your report

checking your FICO score:
the FICO score in a quick score lenders use to determine rate - the higher your score, the better the lending rate


Lenders require mortgage applicants to be within certain "housing" and "debt-to-income" ratios to qualify for credit

i: The "housing ratio": calculated by dividing monthly housing expenses by your gross monthly income. As a basic rule, the housing ratio should not exceed 28%.

ii: The "debt-to-income ratio":
calculated by dividing your fixed monthly expenses by your gross monthly income. As a basic rule, the debt ratio should not exceed 36%.

Calculate your own ratio:
housing ratio | debt-to-income ratio

some lenders will increase both the housing ratio and debt-to-income ratio for qualified applicants:
tips: getting qualified for a mortgage loan


Reduce your current debts

If you have too much debt — meaning your "debt-to-income" ratio is above the minimum threshold — you will need to reduce or consolidate your debts prior to submitting your mortgage application:

(opens new window to our debt management module at:


Use the calculator below to estimate how much home you can afford.

Note that this calculation does not take in the cost of your escrow payment:

tips: understanding the true cost of a mortgage

Monthly Affordability Calculation
Loan Amount to Borrow:


Understand the mortgage lending process

Before you submit your mortgage application, review these steps about the mortgage lending process:

guide: 12-step mortgage lending process


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Achieving Success

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  1. planning
  2. discipline
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