A: One of the first steps to buying a home is knowing how much home you can afford. There are two major steps that go into that calculation.
1. Start with preapproval.
Before beginning your home search, you should get preapproved by a mortgage lender. It is a simple process, and you can do it on LendingTree.com. You provide basic financial information such as your monthly income, credit history, savings, etc., and your lender will calculate how much of a loan that you can afford. After the lender verifies the information, you can be preapproved for a loan up to a certain amount. Once you know what loan amount you are preapproved for and the monthly payments for that loan, you have an idea of how much you can afford to spend on a house purchase.
2. Make a monthly budget.
Now that you know how much of a mortgage you qualify for, it is time to make a monthly budget. Estimate the typical amount that you pay for bills each month, and remember that utilities for a home can be more expensive than for an apartment. Also, factor in money that you spend on entertainment or other expenses. Now add what your monthly mortgage payment would be to that total. Is this a number that makes you comfortable? Knowing your financial obligations each month can help you in knowing how much home you can afford. Be careful not to overextend yourself. Lenders may allow you to borrow more than you are comfortable with; remember just because you’re approved for a certain amount doesn’t mean you have to borrow the full amount. So if you feel stretched, don’t be afraid to buy a less expensive home.
Once you have figured out how much of a mortgage you can expect and calculated your monthly expenses, you can know how much home you can afford.