How Much Can I Afford?
Understanding how much you can afford is one of the most important rules of home buying. Depending on your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of the house, and even what type of financing you choose.
Bear in mind, however, that lenders will look at more than just your income to determine the size of the loan. Likewise, you may find that there are some creative financing options that can help boost your purchasing power.
Loan Prequalification vs. Preapproval
One of the best ways to determine your budget is to have your real estate agent or lender prequalify you for a loan. Prequalification is different from preapproval, because it is only an estimate of what you'll be able to afford. On the other hand, preapproval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a specified amount.
What Factors Are Important to Lenders?
Banks and lending institutions will use several criteria to determine how much money they'll agree to lend. These include: Your gross monthly income Your credit history The amount of your outstanding debts Your savings--or the amount of money you have available Your choice of mortgage (i.e. 30-year, FHA, etc.) Current interest rates
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