Monthly payments include principal and interest on the mortgage loan, property taxes, and insurance against fire and other hazards. These four costs are often abbreviated "PITI" (For some buyers and lenders, monthly home costs may also include homeowner association dues, condominium fees and mortgage insurance.)

In today's market, an "affordable" home is not so much determined by sales price as it is by the financing - which translates into a monthly payment. A house hunter's first step is to set a budget, then go shopping for the home (price) and payments (PITI) that fit that budget. Even though there are many ways to qualify to buy a home, make sure the monthly payment makes sense for you. A current rule of thumb is that the monthly payment should not be more than 29-33% of gross monthly income. Please note: restrictions apply for smaller down payments.

The obvious source of money for your down payment is either your savings or the proceeds from the sale of a home you already own. But there are some other sources. More and more parents (and grandparents) offer help for first-time home buyers. Parents often have considerable equity built up in their own homes-and many are tapping that through home equity loans or refinance of an existing loan to make a gift to the kids. Ask your tax advisor for more information. Lenders may require a "gift letter" to verify that parents don't expect repayment.

Another source is any cash value on your life insurance policy which has built up over the years. You may be able to borrow from your insurance company up to the amount of this accumulated cash value. They may even offer a more favorable interest rate than other types of loans. If you feel the market doesn't favor selling your stocks or bonds now, you may be able to secure a bank loan using your portfolio as security. Or, you may want to look into the possibility of withdrawing what you have in your profit sharing or savings plan account or borrowing against it, if your company has these programs.

If you need a conventional loan, you may only have to put down 5 or 10 percent. Through the lender, you will be required to buy private mortgage insurance (PMI). This insurance provides protection for the lender in case of default, and allows the lender to approve a larger mortgage amount. Ask your lender for specific figures for any loan program you are considering, as the amount of mortgage insurance varies by the type of loan. An alternative to mortgage insurance is the 80-15-5 conventional loan. Be sure to ask your lender it's specifics.

Generally, lenders figure that the home buyer shouldn't pay more than 28-38 percent of gross income for PITI payments, or 39-42 percent for both PITI and monthly debts combined. This might be a little more or a little less depending on other outstanding long term debts (more than 10 months), alimony/child support payments, number of children and their ages, and other household budget items.

New types of mortgages, such as graduated payment mortgages, flexible payment mortgages and deferred interest loans, feature monthly payments that start lower than usual in the early years--and thus help home buyers "afford" more house and buy sooner by qualifying on a lower mortgage payment.

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