Real Estate Agent  This may help

How much home can you afford? This estimation calculator can step you through the process.

Mortgage Pre-Qualifying Calculator

Keep in mind: Only a licensed mortgage counselor (a real-live person) can give you a legal letter of pre-qualification.

How much home can you buy?

There is an often-quoted rule of thumb: You can afford a house that costs up to 2½ times your annual gross income (that is, your income before taxes, Medicare and social security are deducted). If you are buying a house with someone else, you can also consider your co-purchaser's annual gross income to help you decide just how expensive a home you can buy.

Remember, your debts and credit report — as well as your co-purchaser's — will be considered in determining how much you can borrow. Since what you can borrow reflects what you can buy, make sure your credit history (as well as your co-purchaser's) is up to snuff.

Based upon the simple rule of thumb of 2½ times your annual gross (before-tax) income, if you and your co-purchaser together have a combined annual income totaling $40,000, you can expect to buy a home priced at no more than $100,000. That's put rather simply; keep in mind that your buying power will ultimately depend on two things:

  • How much you have available for the down payment
  • How much a financial institution will agree to lend you

Your down payment
Unlike established homeowners who can rely on their equity — money in a property they already own — a first-time homebuyer will have to count on his or her savings as the principal resource for a down payment. If you don't have any savings, you shouldn't play any shell games with your credit cards, such as making a cash-advance to yourself for the amount needed for a down payment. The outcome will only affect your debt-to-income ratio, and furthermore, the interest you pay on the credit card will probably be more than the interest you would pay for the home mortgage, which would cost you even more in interest and fees.

The price you can afford to pay for a house may very well be limited by your ability to come up with the cash for the required down payment, and the closing costs. However, with preparation and planning, you may find that setting aside funds earmarked specifically for a down payment on a regular basis will compound nicely if you place them in short-term interest bearing accounts that you can draw on when needed.

If this is not a realistic option, because you just have to have that house for sale down the street before it goes off the market, then you may want to consider a lease-purchase mortgage loan. Many lease-purchase loans allow first-time and low- to medium-income homebuyers a chance to lease a home from a non-profit organization, with part of your "rent" earmarked for a savings account that accumulates funds for your eventual down payment. This is further discussed here.

Your mortgage
Apart from your down payment, the other major factor limiting your price range will be how much you can actually borrow. When you apply for a mortgage, the lender will consider several factors in determining how large of a loan to grant you:

  • your current earnings
  • your existing debt
  • your credit history
  • your debt-to-income ratio

Debt-to-income ratio
Your monthly costs (including mortgage payments, property taxes, homeowner's insurance, and any condo or co-op fees) should total no more than 28-percent of your monthly gross (before-tax) income.

Your monthly housing costs PLUS other long-term debts should total no more than 36-percent of your monthly gross income.

Real Estate Agent  This may help

Use this calculator to estimate your maximum mortgage, and see how different factors can affect how much you can borrow.

Maximum Mortgage Calculator

Keep in mind: There are other variables involved in determining your housing costs, chief of these being your credit rating. An estimation calculator doesn't know your credit rating, until your mortgage counselor factors it in.

Basically, what lenders want to see is a demonstration by you that you can spend no more than about one-fourth of your income (28-percent) on housing and about one-third of your income (36-percent) on your total indebtedness. Lenders feel that if they follow these guidelines, homeowners will be able to pay off their mortgages fairly comfortably and with much less worry about loan defaults and foreclosures. (These guidelines can be exceeded under certain circumstances, such as a good credit history and a larger down payment. More on that later.)

Low-income and moderate-income homebuyers may qualify for loan programs with different qualifying guidelines: 33-percent of gross income on housing expenses and 38-percent on total indebtedness. The result is that borrowers don't need as much in income to qualify for certain types of mortgages, which is further discussed here.

How much mortgage can you qualify for?

When you apply for a mortgage, the lender will use all the relevant data:

  • your income
  • your existing debt
  • the purchase price of the house
  • your down payment
  • the interest rate of the loan
  • cost of property taxes and insurance

Note that "qualifying" for a loan is only the first step to getting "approved" for the loan. The qualification process determines how large a mortgage you are eligible for, providing your loan application for a specific house is ultimately approved. You can get pre-qualified for a loan without having a particular house in mind, and doing so will give you a better idea of what kind of home you can afford before you even start looking for a home.

Local. Experienced.

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Prequalifying for a Home Mortgage Prequalifying for a Home Mortgage The first step in the home search is home financing. Getting pre-qualified for a mortgage loan is necessary in today's market.

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Finding <em>Who</em> Finds Your Home Finding Who Finds Your Home Working with one real estate agent who has your confidence is better than stringing along several who question whether you are serious.

What to Look For When Looking What to Look For When Looking Not all homes are created equal. There are ways to assess the quality of a home in the same way appraisers look at homes.

Shopping for a Home Loan Shopping for a Home Loan With so many lenders advertising mortgage rates in Florida, how do you know which ones are good, and which ones are teasers?

Comparing Loan Terms Comparing Loan Terms So how do you know which mortgage offer is the one for you? Hint: take a look at more than just the interest rate.

Applying for the Loan Applying for a Home Loan You have the information the bank wants, but do you know how to present it to them in a way that will get you approved for the mortgage?

Mortgage Loan Processing Mortgage Loan Processing What is happening behind the scenes after you submit your application? A lot. Here's an inside look from the lender's perspective.

If Your Application is Rejected If Your Application is Rejected Getting turned down is not the end of the world, and it doesn't mean you have to give up looking. It just means you need a little help.

Negotiating the Purchase Price Negotiating the Purchase Price How do you negotiate the purchase price when you do find the right house? Hint: it's really more than about the price.

Contingencies in the Offer Contingencies in the Offer You've made the offer on a home, and now it feels like a tug-of-war. How do you move forward, and how do you get out of a bad deal?

Preparing for the Closing Preparing for the Closing What comes next, who does it, and how do you know it's being done in time? Preventing surprises at closing, and protecting your interests.

As Closing Day Approaches As Closing Day Approaches In the final weeks before your closing, there will be the title search, the survey of the property, and your final walk-though inspection.

The Day of Closing The Day of Closing The day of closing is finally here. So what you can expect? Here is an explanation of the documents and the closing costs you may encounter.