How much house can I afford?

A down payment is the portion of your home’s purchase price that you pay in cash up front to get your loan.

Some borrowers assume a 20% down payment is required, but many loan options allow you to put down less. In fact, Wells Fargo offers a 3% down payment option on a fixed-rate loan and low or no down payment for qualified borrowers.

Talk with a home mortgage consultant about loan amount, loan type, property type, income, first-time homebuyer, and homebuyer education requirements to discuss eligibility.

When you get a mortgage, your monthly payment amount and the total amount you repay for the loan are determined by several factors, including the interest rate, loan term, and the amount you borrow. Here are some basic home financing terms to help you understand how it works.

Interest rate

• The interest rate is the percentage of your loan amount we charge you to borrow money.
• Interest rates are based on current market conditions, your credit score, down payment, and the type of mortgage you choose.
• Remember that interest rates only tell part of the story. The cost of a mortgage is reflected by the interest rate, discount points, fees, and origination charges. This cost is known as the annual percentage rate (APR), which is typically higher than the interest rate. The APR lets you compare mortgages of the same dollar amount by considering their annual cost.
• Check today’s rates to see rate and APR information for popular loan types.

Discount points

• One point equals 1% of your mortgage amount; however, one point will typically reduce the interest rate by less than 1%. If you qualify, you may be able to pay one or more points to lower your interest rate. A lower interest rate means lower monthly mortgage payments.
• Points are usually tax deductible. Consult a tax advisor regarding tax deductibility. On refinances you may be able to finance points as part of your mortgage amount.

Origination charge

• On a mortgage, this is the amount paid to the lender for originating the loan.
• The origination charge covers document preparation, mortgage underwriting costs, and other fees and expenses.
• The origination charge is separate from discount points and other closing costs.
• On refinances, if you qualify, you may be able to finance the origination charge as part of your loan amount.

Loan term

• Your loan term is the amount of time you have to pay off your mortgage balance.
• Shorter loan terms typically mean higher monthly mortgage payments, but they often have lower interest rates.
• If you pay off your mortgage balance within a shorter term, you may pay less in total interest than with a longer-term mortgage.

Monthly mortgage payment

Your monthly mortgage payment is typically made up of four parts:

• Principal. The part of your monthly payment that reduces the outstanding balance of your mortgage.
• Interest. The part of your monthly payment that goes toward the cost of borrowing the money.
• Taxes. The part of your monthly payment that goes toward property taxes charged by your local government. We typically collect a portion of these taxes in every mortgage payment and hold the funds in an escrow account for tax payments made on your behalf as they become due.
• Insurance. The part of your monthly payment that pays for homeowners or hazard insurance, which provides protection against losses from property damage due to wind, fire, or other risks. Like taxes, insurance costs are usually collected and paid from an escrow account.

Depending upon your property location, property type, and loan amount, you may have other monthly or annual expenses such as mortgage insurance, flood insurance, or homeowner association fees.

Choosing when to buy a home is a very personal decision that will depend on many factors. The following questions can help determine if you’re ready to become a homeowner:

The following questions can help you determine if you’re ready to make the leap:

• Do you have a stable source of income?
• Are you budgeting for your monthly bills?
• Do you know how much you can afford for monthly mortgage payment?
• Once purchased, how long do you plan to stay in your home?

Mortgage underwriting is done by your lender to ensure the loan is the right fit for you. This evaluation is completed by an underwriter who reviews your application and supporting documentation, focusing on four key areas:

• Income – Look at your employment history and proof of income to make sure you can comfortably afford the loan’s payments
• Property – Assess the value and condition of the property you plan to purchase to ensure your loan amount is appropriate
• Assets – Verify you have the funds for the down payment, closing costs, and any unexpected initial home expenses
• Credit – Review your credit report to gauge your creditworthiness and borrowing history