Before deciding on the type of home that suits your needs, it’s crucial to determine what you can afford.

Assessing Your Financial Situation

At this early stage, review all aspects of your financial health, including your income, savings, monthly expenses, and existing debt.

Getting Pre-Qualified

Getting pre-qualified for a mortgage loan is a quick way to gauge how much you can afford. However, keep in mind that you will typically need to get pre-approved before purchasing a home. I will elaborate on the difference between pre-qualified and pre-approved in another article.

Importance of Pre-Approval

I recommend getting pre-approved as soon as possible. Being pre-approved allows you to shop with confidence. If you find a home you like, you can quickly make an offer, which also reassures the seller of your financial capability.

Factors That Determine Affordability

Your ability to pay for a home will be influenced by several factors:

• Gross Income: Your total income before taxes and deductions.
• Available Funds: Money set aside for the down payment, closing costs, and other miscellaneous expenses.
• Debt Burden: The total amount of your existing debt.
• Type of Mortgage: Different mortgages come with varying terms and conditions.
• Interest Rates: Current rates can significantly impact your monthly payments.
• Credit History: A strong credit history can improve your borrowing options.

Housing Expense-to-Income Ratio

Lenders often evaluate your affordability using a housing expense-to-income ratio, which assesses your estimated monthly housing expenses—commonly referred to as PITI (Principal, Interest, Taxes, and Insurance).

Every buyer’s situation is unique, and a mortgage professional can help you determine what you can afford. Your income and debts are typically the most significant factors in establishing your price range.

– Matt