#2 How Much Home Can You Afford?

Now that you're clear about what type of home you are looking for, the next step is figuring out what type of home you can afford. A review of your income, savings, monthly expenses, and debt will be necessary.

Early on in the process, and prior to viewing any homes, you'll want to get pre-qualified for a mortgage loan.  A pre-qualification will determine how much you can afford. It enables you to move swiftly when you find the right home, especially when there are other interested buyers. It also indicates to the seller that you are serious and can afford to buy the property. A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you'll be able to finance through a loan and what your monthly payment will be. When you find a home to buy, a pre-approval also reassures the seller that you have the financial means to purchase his or her home.

Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. The price you can afford to pay for a home will depend on several factors, such as:

• gross income
• the funds you have available for the down payment, closing costs and cash reserves required by the lender
• your debt
• your credit history 
• the type of mortgage you select
• current interest rates

Another figure lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (also known as PITI).

Your Klacik Real Estate professional will assist you with finding the right mortgage professional who will determine that specific loan program that best fits your unique situation.  Your income and your debts will typically play the biggest roles in determining your price range. It's simple to make an estimate, just run the numbers for yourself using our Home Financing Calculator.