 TITLE: How Much House Can I Afford? CONTENT: Decide How Much Money to Put Down\n---------------------------------\nThe amount of cash you put toward a down payment plays a major role in determining how much house and mortgage you can afford. It helps determine the amount the lender is willing to loan you and the fees and the interest charges that will apply. Those numbers, in turn, determine the amount of your monthly mortgage payment.\nWhen deciding how large a down payment to make, it's helpful to understand how mortgage lenders think about down payments. Instead of focusing on the down payment itself, lenders focus on the percentage of a property's value that isn't covered by the down payment—that is, the portion of the property value that they are willing to cover with a loan. Lenders (and the federal authorities who regulate them) refer to this using a figure known as loan-to-value (LTV) ratio, calculated by dividing the amount of the loan by the price of the property:\nIn the case of a $200,000 house, if you make a 10% down payment ($20,000) on the property, the LTV ratio on the amount you'd need to borrow to buy the property would be $180,000 divided by $200,000, or 90%. If you increase your down payment to $30,000 (15% of the purchase price), the LTV ratio would decrease to 85%.\n\"Conforming mortgages\" that meet the purchase requirements set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that eventually buy most U.S. single-family-home mortgages, can have LTV ratios no greater than 80%—meaning down a payment of at least 20%.\nConventional mortgage lenders may issue \"nonconforming\" loans with LTV ratios as high as 95% (or down payments as little as 5%). The interest rates and fees on these loans are typically much higher than on conforming loans, and borrowers with LTVs greater than 80% are typically required to buy private mortgage insurance, which can increase in monthly mortgage payments.\nIn addition to its importance in determining the total amount you can borrow, your down payment amount often plays a role in setting the origination fees, you typically pay when you take out a mortgage loan. Many lenders give borrowers the option of trading a higher down payment for reductions in origination fees. Fees are expressed in terms of percentage points of the loan amount, or simply \"points,\" and buying these \"discount points\" can mean major savings over the life of a loan. END