The first step in figuring out which home you can afford is to talk with a home loan officer so that you can get pre-qualified for a loan. There is no reason to make plans for a house that you love but cannot afford. Getting pre-qualified allows you to know how much a lender is willing to offer you. The pre-qualification is not a guarantee that you will get that amount, but it will give you the best estimate of what you can afford. When it gets closer to the time you need t buy, you will get pre-approved for a loan.
The pre-approval process is much more involved than the pre-qualification process because your lender will need pay stubs, tax forms, credit history, bank statements, and other financial documents.
When putting in an offer to buy a house, many sellers ask for a pre-qualification letter before they even negotiate a price. So, getting pre-qualified is a powerful tool for home buyers. This letter shows that you are a serious and able buyer.
Typically lenders are only concerned about your ability to pay. As a result, lenders want to know not only your income, but also debts or other financial obligations you may have. Lenders may look more favorably on you if you can make a down payment. Some down payment options include paying 5%, 10%, and 15% of the purchase price of the home. As a general rule, buyers can expect to get pre-qualified for 2.5 to 3 times the amount of their gross annual income if they have little to no prior debt. Using this rule, your monthly home mortgage payment should not be more than 30% of your gross monthly income.
