So you would like to purchase a home but do not know where to start. How do you answer the question how much house can i afford?

Step One: Look at Your Monthly Budget

It is really very simple.  Make a personal monthly budget. Your starting point has to be your take home pay.  After that you need to list out all your expenses.  Don’t forget to include savings, dinner out and the movies. You should be able to look back at your checkbook or credit card statements to determine how much you spend and on what.  After you have subtracted out your expenses and savings from your take home income you know how much you have left.  That will be the amount of monthly payment you will be able to afford for a home including the principle, interest, property tax and insurance (PITI).

Most important thing I tell all of my clients, don’t be house poor because you bought more than you can really afford.

Now that you know how much you can afford visit a bank or mortgage broker (I have a couple that I really like and would be happy to share their name with you).  What you want is to get a pre-approval for a loan.  The lender may surprise you and tell you that you can afford more than you thought or they may disappoint you and tell you that you can afford less than you thought.  Worse yet they good tell you that your credit is not sufficient enough at the present time to purchase a home, and if that is the case, there are other things to begin working on to fix that.

If you feel comfortable with a $200,000 home based on your budget and the lender says you can afford $300,000 that’s great, but your budget is more important than the higher credit approval.  Remember, a good realtor will not try to push you into a higher home price.

Make sure you understand the importance of the pre-approval.  Everything you tell the lender must be provable.  So be extremely honest about credit, debt, income, assets and liabilities.  You don’t want to get pre-approved and then have the loan fall apart because something shows up that you didn’t tell the lender existed.

The pre-approval process is very easy and normally takes only two or three days.  However, by the time the lender verifies everything, this will take about 30 days for final loan approval.  The final loan approval includes having the house you purchase appraised to make sure the home is not overpriced.

It is extremely important you find a professional lender who is a good communicator and well as find a good realtor who is after your best interest.  Your realtor should be helping find you what you want and not what brings a quick commission.

Spend time determining what you can afford before you begin looking or contacting anyone.