Prior to determining what type of home would be best for you, I find it is best to determine what you can afford.
At this early stage, all your income, savings, monthly expenses, and debt will need to be reviewed.
Getting pre-qualified for a mortgage loan, is a quick way to determine how much you can afford. (However you will typically still need to get pre-approved prior to purchasing a home. I will go into more detail on the difference between Pre-qualified and Pre-Approved in another article.)
I find it is best to get pre-approved as soon as possible. Being pre-approved allows you to shop in high confidence. If you find a home that you like, you can quickly put in a bid to purchase and it also reassures the seller you have the financial ability to purchase the home.
What you can afford to pay for a home will be determined by factors like:
- Gross Income.
- Available funds for down payment, closing and other miscellaneous costs.
- Your debt burden.
- Type of mortgage.
- Interest rates.
- Your credit history.
One way lenders evaluate how much you can afford is by using a housing expense-to-income ratio. This is determined by calculating what your estimated monthly housing expense would be. This is known as PITI. (Principal, Interest, Taxes, and Insurance)
Every buyer is different and a mortgage professional can help you find out just what you can afford. Income and debts typically are the largest factors in determining your price range.