Learn About the Process

“How much home can I afford?” is probably the most common question first-time home buyers have. One general rule of thumb is that your total housing expenses shouldn’t be more than 28 percent of your income.

Your debt-to-income ratio (DTI) is the percentage of your income you spend on debt repayment each month. When preparing for a mortgage, aim for a DTI of 43 percent or less.

Your mortgage payment includes the principal and interest on your loan. You may have the option of paying your annual property taxes and homeowner’s insurance premiums in monthly installments, which are added on to your principal and interest payment.

Depending on how much money you put down, your payment could also include private mortgage insurance, or PMI.

PMI is a type of mortgage insurance that some loan programs require you to pay when you put less than 20 percent of the purchase price down on a home.

Yes. You could get an FHA loan with a smaller down payment. Some VA loans and USDA loans don’t require any down payment from qualified buyers.

When asking how much home can I afford, don’t forget about other costs besides your monthly payment. Remember to factor in homeowner’s insurance, property taxes, homeowner’s association fees, routine maintenance, and potential repairs.

Checking your credit is a good idea when preparing for a mortgage. Loan programs require different credit scores depending on the type of loan, the lender, and the amount you’ll be putting towards a down payment.

Generally speaking, the better your credit score, the lower your mortgage rate will be.

No, but getting pre-approved can help you determine how much home you can reasonably afford, which is helpful for staying on budget. It can also make the formal mortgage process easier, since your lender is already familiar with your credit and financial details. Another great benefit: having a pre-approval in hand shows sellers that you’re serious about buying, and it can give you some leverage if you’re competing with other buyers to get your offer accepted.

Once your offer is accepted, the next steps to buying a house including scheduling an appraisal, home inspection, and pest inspection. Be prepared to pay for these up front.

Closing costs are paid when you sign the final paperwork on your home loan, and they include things like attorney’s fees, title insurance fees and recording fees. Expect to pay between 2 and 5 percent of the home’s purchase price at closing. The steps to buying a house may seem complicated but your real estate agent and lender can walk you through them. If you’re unsure whether home ownership is the right move.