It is important to know how
much you can afford before you begin looking at homes in town. You should
also talk with a lender and get pre-approved for a loan. This puts you in a
stronger negotiating position with a seller.
As a rule, your monthly housing costs should not
be more than 28% of your monthly pre-tax income, including the mortgage payment,
real estate taxes, and insurance. If you have long-term debts, such as student
loans or car payments, your monthly payments, including your housing costs,
should be less than 36% of your pre-tax monthly income. Some loans, such as VA
and FHA loans, are more flexible with these basic guidelines.
Depending on which type of mortgage you select,
you can consider houses in various price ranges. An adjustable-rate mortgage
will usually enable you to qualify for a higher loan amount. Your Realtor can
help you make the basic calculations. And remember, buying at the top end of
your price range gives you more time to outgrow your home, and can save you
money in the long run.