You're ready to buy a home, but do you really know how much you can afford? 

 

Before you set out on your new home search, it is important to know how much you are able to afford. This is referred to as being pre-qualified, which is different than being pre-approved. During the pre-qualification process you will learn a number of different things about your finances such as:

 

  • How much home you can afford

 

  • The amount of down payment you will need

 

  • The minimum down payment and the advantages of higher down payments

 

  • What the bank feels you can afford for a monthly payment

 

Determining this information ahead of time will also assist your agent in finding the right properties for you to look at that fall within your budget.

 

The next step recommended is to be pre-approved. This step is more involved as your lender will review your finances in detail to determine how much money they agree to loan you for your home purchase. Your lender will review the following:

 

  • Gross Monthly Income

 

  • Credit History

 

  • Amount of any/all outstanding debts

 

  • Source and amount of money available for down payment and closing costs 

 

  • Type of Mortgage 

 

  • Interest Rates, etc. 

 

Analysis of this information will allow the lender to determine two important ratios:

 

  • Debt-to-Income Ratio
    Your bills/debt each month should not exceed 36 percent of your gross monthly income

 

  • Housing Expense Ratio
    Your monthly mortgage payment should not exceed 28 to 33 percent of your gross monthly income

 

For more information about pre-qualification visit Pre-Qualify For Your Mortgage or visit our Home Finance page for additional mortgage information.

 

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