How much home can you really afford? The first step in buying a home is to have a budget and figure out how much you can actually afford. Your agent or lender can help you with this in a couple of ways:

 

  •  Pre-qualifying process This process will give you a general "estimate" of what you will be able to afford.

  • Pre-approval process This process will allow your lender to review your finances in more detail in order to determine the amount of money they agree to loan you for your home purchase.

Your lender will review your finances and focus on a few main areas such as:

  • Gross monthly income
  • Credit history
  • Amount of outstanding debts
  • Source and amount of money available for down payment and closing costs
  • Interest rates, etc.

All these things put together will help your lender determine two important qualifying ratios.

  1. Debt-to-Income Ratio Generally the amount of debt you pay each month should not exceed 36 percent of your gross monthly income
  2. Housing Expense Ratio Most lenders will not approve your loan if the mortgage payment exceeds 28 to 33 percent of your gross monthly income

These are the first steps in determining how much you can afford when purchasing a new home. For more mortgage and finance information feel free to contact me.