When you want to buy a home, consider how much you can afford. Unless you are paying in cash, figure out how much you can borrow, which depends on your debts, expenses, assets and income. The amount you can afford can also vary with closing costs, interest rates on mortgages and cash need for a down payment. In many cases, you will need a down payment of 20% of the purchase price to avoid paying for private mortgage insurance. A common rule is that the home should not cost more than 2.5 times your yearly income.

The most common type of financing is with a savings and loan institution or a bank. The buyer will agree to pay interest on the borrowed money and the lender retains a mortgage on the home.  Buyers can also obtain financing from the seller. There are several forms of financing available through this option.