Early in the home buying process, you’ll want to get pre-qualified for a mortgage loan. It enables you to move swiftly when you find the right home, especially when there are other interested buyers. It also indicates to the seller that you are serious and can afford to buy the property. A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you’ll be able to finance through a loan and what your monthly payment will be. It will also determine what loan program you best fit into and what if any requirements there will be for the property you select.
The price you can afford to pay for a home will depend on several factors, such as:
- Gross income
- The funds you have available for the down payment, closing costs and cash reserves required by the lender
- Your debt
- Your credit history
- The type of mortgage you select
- Current interest rates
Another figure that lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment, property tax payments and insurance premiums on your new home loan (also known as PITI).
Each buyer is unique, and a mortgage professional can help you find out just what you can afford. Talk with your CENTURY 21® agent to get a list of recommended mortgage professionals in your area.