As any experienced home buyer knows, taking an objective and honest look at finances is one of the first steps in beginning the search for a new home. Knowing how much you can dedicate to your new home purchase affects almost every aspect of the process - including the way we write the offer, which mortgage programs you will qualify for, shopping for the best mortgage loan and which homes are truly in your price range.
Each home buyer should ask themselves these questions:
How much am I able to use as a down payment?
The amount you have available for a down payment will affect which types of loans you qualify for.
Am I ready to write an earnest money check?
Earnest money, as its name implies, is a deposit made to the seller in order to secure an offer to buy the property. It is often forfeited if the buyer withdraws his offer.
How much will I have available for closing costs?
Closing costs cover standard costs associated with the sale of a house. They are oftentimes split between both the buyer and seller, depending how the sales contract is written.
How much can I afford to pay monthly?
Most lenders use what is called the "28/36 Rule" (No more than 28% of your gross income is to be applied to your mortgage, insurance and real estate taxes. No more than 36% of gross income can be applied to your mortgage and any other regular debt expenses, ie car payments, other loans, credit cards, etc.) in order to determine the maximum mortgage payment you can afford.
