Understanding what you can afford
One of the first steps in the homebuying process is to fully understand your finances. It's not as fun as looking at homes, but it's important and necessary to help you determine how much you can afford.
Buying a home requires that you get a firm handle on your finances, gathering your supporting documentation, and answering a handful of questions, including What is your gross income? What do you spend each month? Do you have credit card debt? How much do you have in savings?
To get a rough estimate of what you can afford, most lenders suggest that you should spend no more than 28% of your monthly gross (pre-tax) income on your mortgage payment, including principal, interest, taxes and insurance.
Aside from having a firm grip on your income and expenses, it’s equally important to understand the role your credit, mortgage rates and home-related costs play in determining what you can afford.
You'll want to work closely with your lender to determine what you can comfortably afford. It's their job to cover all bases and make sure your final number is within your means and aligns within your financial goals.