Know What You Can Afford
One of the most frustrating phases of the home-buying process is finding the home you really want on the budget you can afford. Some buyers waste time and energy house-hunting before they know what they can actually afford. So, one of the very first steps you should take when thinking of purchasing a home is to assess your finances.

• Compare Buying versus Renting
• Find out about current interest rates
• Understand what your closing costs will be
• Calculate your income, debt ratio and down payment
• Now, figure how much you can afford to pay for your dream home
• Most lending institutions will be more than happy to help you in determining what your home-buying budget will be, taking all the confusion out of the various financing options. Which is better: finding the perfect home only to find out later you can't afford it, or knowing up front what you can afford so that once you find the perfect house, you know you can buy it?
   

The amount for which you qualify is based on two different calculations. Using what are known as qualification ratios, lenders evaluate your income and long-term debts to determine a "safe" amount for your mortgage payments. A fairly standard ratio is 28/33. Some mortgage plans use more liberal ratios - for example, FHA currently uses 29/41. It works like this: With a 28/33 ratio, you are allowed to spend up to 28% of your gross monthly income for a mortgage payment. The lender will then run a different calculation. This one is your loan payment and debt payments combined, which cannot exceed 33% of your gross monthly income. To calculate how much you may borrow, you also need an estimate of current interest rates.

As part of the calculation, you may need to estimate and include the property taxes, homeowner's insurance, and Homeowner Association fees (if applicable). These are considered part of your monthly expenses. Begin your home buying process by using our mortgage calculator to determine how much you can afford. Any of our sales associates or any mortgage lender will be happy to analyze it for you.