Lake Lanier Homes | How much can you afford?

Real Estate Tools | Buying | Selling

How Much House Can I Afford?
House hunting begins at home... with planning. Before you grab the road maps and hit the streets, you need to know how much house you can afford to buy. Knowing your affordable price range will bring your house hunting into focus.

How much house you can afford depends on two things: how much you can afford for the monthly house payment, and how much you can invest in the down payment. Monthly payments include the principal and interest on the mortgage loan, and property taxes and insurance against fire and other hazards. These four costs are often abbreviated "P.I.T.I." (For some buyers and lenders monthly housing costs may also include homeowner association dues, condominium fees and mortgage insurance.)

The key items are the size of the down payment and the amount of the mortgage. The down payment might be zero in the case of VA-backed mortgages. Or a buyer may invest 20 to 25 percent of the purchase with a conventional loan and not be required to buy mortgage insurance. A Citihomes Associate can be very helpful to you in determining just how much house you can afford.

Qualifying for Your Loan
A house hunter's first step is to set a housing budget, then go shopping for the house (price) and payments (P.I.T.I) that fit the budget. Few things are more frustrating than looking at homes, falling in love with one, and then discovering that you can't afford that particular house. You can avoid this by getting pre-qualified, then pre-approved.

Even though there are many ways to qualify to buy a home, make sure the monthly payment makes sense for you. A current rule of thumb is that the monthly is that the monthly payment should not be more than 25-33% of gross monthly income.

You'll want to note the differences between being pre-qualified and pre-approved.

Pre-Qualification:

Based on preliminary information regarding your income, debts and assets.
Information is usually provided verbally by the buyer(s)
In-file credit report may or may not be reviewed
Once a purchase agreement is executed, the buyer must complete a loan application
No fee

Pre-Approval:

Buyer provides documentation of income, debts and assets.
Loan application is completed.
Information is verified and loan is approved by underwriter
No need to complete application once purchase agreement is executed (it's already done)
Buyer makes a deposit on closing costs
Buyer's loan is approved, subject only to home's appraisal

Credit Scoring
Savvy home buyers know the importance of credit. When you're in the process of looking for your new home, credit scoring can save a great deal of time and frustration.

Credit scores help lenders determine the type and size mortgage loan for which you qualify. The score is basically a summary of your credit report, in the form of a numerical measurement that reflects your management of credit. Based on information compiled by credit bureaus, the score takes into consideration:

The applicant's payment history
The amount of credit the applicant has
Information reported monthly by creditors
Any serious past problems with debts (i.e., liens, bankruptcies, collections, judgements)

The credit scoring process converts these and other factors into a single number that aids lenders in determining the likelihood an applicant will repay a loan on a timely basis.

Credit scores used in mortgage lending typically fall in the 300 to 900 range. Generally, the higher the score, the less risk of default the borrower presents to the lender. However, credit scoring is only one factor considered by a lender when evaluating a only after careful analysis of all the information collected from the applicant.

Even home buyers who are already pre-qualified benefit from knowing their scores. While the pre-qualification measures debt and income ratios to "predict" the loan amount for which a person may qualify, the credit score provides a clear indication of the buyer's credit standing - a major factor during the final loan approval process. A low score may necessitate a decreased loan amount, a change in mortgage type or possibly even denial of the loan altogether. We recommend that every home buying prospect learn his/her credit score as the first step in the lending process.