When you are ready to get involved in the real estate market, figuring out how much you can afford is one of the most important parts of the process. Many people go into the process of buying a house with unrealistic expectations. They think that they can buy a mansion on a minimum wage salary, and end up disappointed. Other people end up getting a house that is more than they can afford and it cripples them financially. How much home can you afford? There are a few different ways to find out.
One of the best things that you can do in this situation is get pre-qualified with a mortgage lender. Almost every mortgage lender offers this type of service for customers. To get pre-qualified, you will simply need to answer some general questions for a loan officer at the mortgage lender. The loan officer will ask you how much money you make, how much debt you have, and what your credit profile is like. The officer will then do some calculations and come up with a maximum loan amount that you could qualify for. When you get pre-qualified, it is important to realize that you are not actually approved for a loan. That comes with a more in depth process, known as pre-approval.
Look at Your Budget
After you get pre-qualified with a mortgage lender, you need to look at your own budget and determine how much you can realistically afford. Just because a mortgage lender tells you that you can afford something based on its lending ratios, that does not necessarily mean that you can afford it realistically. If you only have $1,000 that you can allocate to a housing payment from your budget, it doesn’t matter if the lender qualifies you for a mortgage with a monthly payment of $1,500. You have to look at your own financial situation in addition to the numbers that the mortgage lender gives you.
As a general rule, you should try to avoid taking on questionable mortgage arrangements that are designed to give you lower payments on a temporary basis. For example, you may be able to get an affordable payment with an adjustable rate mortgage. However, after the fixed interest rate period is up, your payment might jump up significantly. Getting a mortgage that allows you to build equity, such as a fixed rate loan, will go a long way toward affording your next home as well.