One of the first things you want to do before shopping for a home is determine how much home you can afford. Shopping before being qualified can result in a lot of wasted hours shopping for a home that is either too much money for your budget, or less than you thought you could afford. This is what is known as prequalifying.
Your monthly payment will be broken down into four separate payments known as PITI. PITI stands for Principle, Interest, Taxes, and Insurance (when buying a condominium, you also want to include the Condominium Association fee when planning your monthly payment.)
First you want to decide how much you want to pay monthly in PITI. Lenders have guidelines which they will use to assist you in determining how much you can afford to pay each month. Generally, a lender will want your monthly mortgage payment to total no more than 28% of your monthly gross income. Many lenders will allow larger ratios, depending on the type of financing. Ask your lender for the specifics of other lending programs.
Once you know what your monthly payment can be, you want to figure out what price home you can afford. That figure will be determined by the interest rate, the taxes on the home you are looking to purchase, and how long the loan term (the number of payments) will be. Once you have this information, you will be able to shop for a home you know will be in your price range.
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