How Much Can I Afford?
The journey to homeownership starts by understanding how much you can afford. One major thing to consider is your down payment, if any. Many consumers believe it's impossible to buy a home without at least 20 percent down. But thanks to various government-sponsored programs, many people can now buy a house with as little as 3.5 percent toward a down payment. Veterans of the U.S. military have zero-down programs available.
PRE-QUALIFICATION VS. PRE-APPROVAL
Pre-qualification and pre-approval are two terms you'll hear frequently when preparing to buy a home; however, they are not interchangeable. Pre-qualification is a simple estimate of how much you could afford, whereas pre-approval is when you get your mortgage loan amount approved. You don't need to be pre-qualified to start looking for a home, but you will need to be pre-approved before you begin negotiating. So it’s best to get this part out of the way early.
Once you've been pre-approved, the real fun begins and it's time to find your dream home. When looking for homes, keep in mind your current income. Although you might be pre-approved for a certain amount, are the payments on that loan feasible for you to make every month? Ensure that the price range you're looking at is sustainable for your current lifestyle and budget.
When buying a home, you'll also be required to pay closing costs. These are essentially fees charged by lenders and other third parties involved in the purchase of your new home. Closing costs can range between 2 and 5 percent of the home price, and payment is required before you close on your new home. In addition to your down payment, be sure you have money set aside to cover closing costs.