What Price Home Can You Afford?

When searching for a home it is important to have a list of  features and amenities that you are looking for , but price will most likely be one of the main factors that determines which house is best for you. If you are like the vast majority of Americans, you will most likely need to take out a mortgage loan to pay for your new home. Mortgage pre-approval through a reputable lending institution will give you a clear idea of how much you can afford to pay for a house.

Mortgage pre-approval has a number of advantages. Not only will you know the exact amount that you can afford to spend on a home, but you will also be able to move quickly when you find your perfect home since you already have financing secured. Each lending institution has their own formula for deciding how much they will loan a customer, but in most cases they will look at the following:

• Gross Income- The amount of money you earn at your job is taken into account when determining a loan amount. Expect the lending institution to request tax returns and pay check stubs to verify your income.
• Amount of Debt Owed- A person who is obligated to make large payments each month to repay debt will not be able to afford to make as high of a mortgage payment as someone who has minimal debts. In most cases, the more debt someone owes, the less money a lending institution will offer them in regards to a mortgage loan.
• Credit History- A mortgage loan is usually for a very large amount of money. Lending institutions want to ensure that they will be repaid, to they check a mortgage applicant’s credit report to determine the likelihood that the customer will pay back the loan on-time, and according to the loan’s terms.
• Liquid Funds Available- Purchasing a home requires you to place a down payment, pay closing costs, and have cash reserves on hand. Having ample funds shows a lending institution that you are in a good position to take on the financial responsibilities associated with owning a home.
• Interests Rates and Loan Type- High interest rates will increase the mortgage payment that you must make each month, thus lowering the overall price that you can afford to pay for a home. Likewise, different loan types have different terms; a 15-year mortgage has higher payments than a 30-year mortgage, so choosing a mortgage loan with a shorter repayment period will reduce the amount that you can borrow to pay for a home.

After you are pre-approved for a mortgage, you and your realtor can focus your home search on homes that are in your price range. You will also have a good idea of what your monthly mortgage payments will be. Not only will mortgage pre-approval speed up the home buying process, it will also prevent you from wasting time, or falling in love with, a house that you can’t afford.

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