How much house can you afford

Q: How do I know if I can afford a house?

A: Through a little bit of research, you can easily figure out if you can afford a house.

1. Add up your monthly expenses.
Although spending a couple of hundred thousand on a new home can seem overwhelming, you must remember that you will be making monthly payments on the mortgage. Therefore, your monthly expenses are one important way to determine how much house you can afford. Estimate what you typically spend on bills each month, erring on the high side. Don’t forget any debt that you need to pay down or anything that’s automatically withdrawn from your checking account. Also, factor in discretionary spending, such as for entertainment or clothing.

2. Check your credit report.
Make sure that your credit history is in good order. When you apply for a mortgage, the lender looks at your credit report to help determine your interest rate and how much you can borrow. For example, you may need to pay off some loans before acquiring a mortgage, if your current debt load is high. With a mortgage, you are adding to your debt, so it is important that you manage your current debt well.

3. Get preapproved.
Getting preapproved for a mortgage is one of the most helpful things that you can do to know how much house that you can afford. To get preapproved, contact a lender or go through LendingTree.com. Lenders will check your savings, credit history, income, etc. to decide how much of a loan for which you can qualify, and the monthly payment. Preapproval is a great tool for you to use in figuring out how much of a house you can afford because the lender uses your financial information to determine the amount.

4. Don’t forget the rent factor.
If right now you are paying rent, remember that a mortgage payment is often more expensive than the rent that you are paying. More importantly, instead of just paying rent, with home ownership you also have maintenance and upkeep. So make sure your budget includes money for things such as repairing the air conditioning or repainting your house.

5. Decide what makes you comfortable.
When figuring out how much house you can afford, keep in mind that you are the one who will be making the mortgage payment. Do these calculations with your comfort level in mind. Don’t overextend yourself, but choose a home price that has a monthly mortgage payment that you can feel comfortable paying.