This is a very common question and a very good starting point for actually buying a home. If you want to pay cash, the answer is easy because major limitation is the amount of cash you have.

But if, like most people, you will be financing most of your purchase, then I would suggest that the first thing you do is talk to a lender, because your major limitation will be how much of a mortgage you qualify for. You can always borrow less than you qualify for but you can’t borrow more.

My favorite lenders are listed at the bottom of this post.

Lenders will evaluate how much you can afford by looking at the amount of your income and calculating 1) how much they feel you can afford to spend on housing (usually in the neighborhood of 28% of your gross income) and 2) how much they feel you can spend on housing and debt (student loans, car payments, credit card bills, etc) combined. The latter figure is usually in the mid 30s% but can be in the 40s% depending on a variety of factors.

While you can find online calculators that will give you a ballpark figure, it is really better to actually talk to the person who would make the loan, because they will take other things into account, like how much of a down payment you have, special programs you might qualify for, requirements of specific loan programs, etc. Having excellent credit will get you a better interest rate, which means a lower monthly payment. You need to talk to someone to truly factor everything in and come up with a real world figure.

You don’t have to borrow the maximum amount that you qualify for. The best way to find the payment you are comfortable with is to bank the difference between your current rent or mortgage payment and the monthly payment you aspire to. Can you comfortably live on what is left? Remember there are expenses to owning a home that renters don’t have, such as condo or HOA fees, taxes and insurance, maintenance and repairs, and replacement of everything from roofs to appliances.

I encourage people to talk to a lender as soon as they start thinking about buying a home, because you don’t want to find out 60 days before your lease expires that you need to save $10K or more to be able to afford the home you want. There are also upfront costs to buying a home (see my first blog post!) that can affect your ability to afford to buy a home.

I know, everyone starts the process by perusing homes for sale online, because people love to look at homes! But it really does not make much sense to look at homes that you may or may not be able to buy. If you start with the numbers, you can be much more focused and prepared to buy the home you really want.

My fav lenders:

Dave Oliverio, SWBC
(703) 232-8655
DOliverio@swbc.com

Richard Hearn, Atlantic Coast Mortgage
(571) 442-7969
rhearn@acmllc.com