Financing Your Home

How Much House Can I Afford?

It's kind of ironic, but house hunting usually begins in your own living room! That's because the best house-hunting strategies start with careful planning. So, long before you start pouring over online listings and hitting the neighborhoods with your Real Living agent, first decide your price range.

Knowing your housing budget upfront will quickly bring your efforts into focus.

How much you can (and want) to spend depends upon two things:

1. What you want or need your monthly payment to be.
2. How much you're willing or able to put toward a down payment.

Remember that your monthly mortgage payment will include the principal and interest on the loan as well as property taxes and insurance (both fire and hazard). These four costs are abbreviated P.I.T.I. (for principal, interest, taxes and insurance). And, depending on which home you buy, your monthly cost could also include homeowner association dues, condominium fees and Private Mortgage Insurance (PMI).

Since your down payment can range from zero dollars to 25 percent of the total purchase price, talk to your Real Living sales associate or Real Living home mortgage consultant. S/he can be very helpful to you when it comes to understanding your options and determining just how much house you can afford. In the meantime, learn more about:

• How to estimate your out-of-pocket expenses at closing.
• How to find sources (outside of savings) for your down payment.

Qualifying
As part of the planning process, find out how much you can comfortably afford by getting pre-qualified. Keep in mind that although there are a number of loan types available, you still need to work toward finding a monthly payment that makes sense for you. As a general rule, expect your monthly mortgage to be no more than 25 to 33 percent of your gross monthly income. Use our quick and easy lending formula to figure your housing budget.

Credit Scoring
In deciding how much house you can afford, consider getting your credit score as early in the home-buying process as possible. Your credit score helps your lender determine the type and size of your mortgage loan; so knowing your score can save you loads of time and maybe even a little disappointment.

Your credit score is a numerical measurement of your credit report and reflects your overall management of credit. Using information compiled by credit bureaus, your credit score is based on several factors including:

• Your payment history
• The amount of credit you have
• Information reported monthly by your creditors
• Any serious problems in the past with debts, such as liens, bankruptcies, collections and judgments.

Your final score is used by lenders to help determine the likelihood that you'll repay your loan on a timely basis. Credit scores typically fall in a numerical range, from 300 to 900. Generally, the higher the score, the lower the risk you are for the lender.

Keep in mind that credit scoring is only one factor considered by a lender. You can expect a careful analysis of all the information collected from you during the loan process.

By the way, even if you're already pre-qualified, you can benefit from knowing your credit score. While pre-qualification measures your debt and income ratios to predict your qualifying loan amount, your credit score provides a clear indication of your credit standing — a major factor during the final loan approval process.