Whether you are a first-time home buyer or looking to upgrade to a larger home, determining how much house you can afford is an important step in the mortgage process. Some real estate agents may even require a pre-qualification letter before showing you a home.
Numerous factors can determine what you may qualify for, however below are 4 key factors that a lender will consider when determining your mortgage qualification:
- Income – Money received on a regular basis, such as your salary or income from investments. Your income helps establish a baseline for what you can afford to pay every month.
- Funds available – The amount of cash you have available to put down and to cover closing costs. You can use your savings, investments or other sources.
- Debt and expenses – Other monthly obligations you may have, such as credit cards, car payments, student loans, groceries, utilities, insurance, etc.
- Credit profile – Your credit score and the amount of debt you owe influence a lender’s view of you as a borrower. Those factors will help determine how much money you can borrow and what interest rate you’ll be charged.
Keep in mind, it is important to understand the difference between a pre-qualification amount and the amount you end up borrowing. Becoming “house poor” can be easy. Your pre-qualification letter states the maximum loan amount you can borrow based on the information you have given, but that doesn’t mean you have to borrow the full amount. Make sure you consider additional home costs such as utilities, maintenance and insurance to determine how much you are financially comfortable buying.
Use this purchase calculator to jump start your mortgage process.
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