The first step in figuring out which home you can afford is to talk with a home loan officer
so that you can get pre-qualified for a loan. There is no reason to make plans for a house that you love but cannot afford. Getting pre-qualified allows you to know how much a lender is willing to offer you. The pre-qualification is not a guarantee that you will get that amount, but it will give you the best estimate of what you can afford. When it gets closer to the time you need to buy, you will get pre-approved for a loan. The pre-approval process is much more involved than the pre-qualification process because your lender will need pay stubs, tax forms, credit history, bank statements, and other financial documents.
When putting in an offer to buy a house, many sellers ask for a pre-qualification letter before they even negotiate a price. So, getting pre-qualified is a powerful tool for home buyers. This letter shows that you are a serious and able buyer.
Typically lenders are only concerned about your ability to pay. As a result, lenders want to know not only your income, but also debts or other financial obligations you may have. Also, lenders may look more favorably on you if you can make a down payment. Some down payment options include paying 5%, 10%, and 15% of the puchase price of the home.
As a general rule buyers
can expect to get pre-qualified for 2.5 to 3 times the amount of their gross annual income if they have little to no prior debt. Using this rule, your monthly home mortgage payment should not be more than 30% of your gross monthly income.