How Much House Can You Afford?

Realistically understanding how much house you can actually afford is not only one of the first things you need to get a grasp of when starting the home buying process, but it's also one of the most important. Depending on your particular situation, your budget affects everything from the neighborhoods in which you search, to the size of the home, and even what type of financing is going to be best for you.

The best way to determine your budget is to have your realtor prequalify you for a loan. Getting prequalified is different from getting preapproved, because it's only an estimate of what you will be able to afford. Preapproval is the actual process where a lender examines your finances and determines the exact amount that will be loaned to you.

Lenders look at your gross monthly income, outstanding debt amount, credit history, the amount of money you have available for a down payment and/or closing costs, and your choice of mortgage. They are looking at this information to determine your debt-to-income ratio and your housing expense ratio. Typically lenders don't like to see more than 35 percent of your gross monthly income needed for debts such as car payments, credit cards, student loans, etcetera. If your future mortgage payment is going to exceed 28 to 33 percent of your gross monthly income, it's typically very difficult to obtain a loan. Of course making a down payment can make a difference, especially if it is a sizeable one. If you can afford to put 20 percent down, your lender may approve you with a 33 percent housing expense ratio, versus a 28 percent housing expense ratio for someone who can only afford as much as 5 or so percent as a down payment. 

If you fall into any of the scenarios that might weaken your purchasing power, talk to your realtor about different home buying strategies such as negotiating closing costs, different loan programs including local and federal government programs, and different loan types that are available to you. Your realtor has the experience and knowledge to help you find the best home for your lifestyle, personal needs and, of course, budget.

Tina Fountain Realtors is an Atlanta Georgia Real Estate company serving the entire Metro Atlanta area including Kennesaw Homes For Sale and Cobb County Homes For Sale. Contact Tina and her staff of professional agents at 404.842.1555.