How Much House Can You Afford?
Mortgage lenders recommend you do not buy a home that is more than 3 to 5 times your annual household income. If you are not purchasing a home with cash, you will need a mortgage pre-approval provided by your mortgage lender.
A lender will work with you to get a loan that meets your needs. Some buyers are concerned with keeping their monthly payments as low as possible, others want to make sure that their monthly payments never increase.
Quick Affordability Rule
Your home should cost no more than 3-5 times your annual household income. This helps ensure comfortable monthly payments.
Check Your Credit
A mortgage requires a good credit score. You can improve your score by:
Pay Down Credit Cards
Reduce your credit card balances to improve your credit utilization ratio and boost your score.
Make Payments On Time
Continue making all payments on time to maintain and improve your payment history.
Avoid New Credit
Don't apply for new credit cards or car loans until after you've been approved for your mortgage.
Avoid Big Purchases
Hold off on major purchases that could affect your debt-to-income ratio during the approval process.
Stable Employment
If possible, avoid job changes until you have been approved for your mortgage.
Save Cash for Down Payment & Other Expenses
In order to make your dream of buying a home a reality, you will need to save cash for your down payment, earnest money, closing costs & home inspector.
Down Payment
Typically between 3.5% & 20% of the purchase price. Higher down payments often mean better loan terms.
Earnest Money
Money you put down to show you're serious about purchasing a home. Also known as a good faith deposit.
Closing Costs
For the buyer, these typically run between 2% & 5% of the loan amount and cover various fees and services.
Home Inspection
Professional inspection costs $300 to $500 and helps identify potential issues with the property.
Ready to Get Pre-Approved?
Now that you understand your finances, it's time to get pre-approved for your mortgage and start shopping with confidence.