Home Buying 101 – Step Three: How much can you afford?

This is the third installment of twelve weekly features for first-time homebuyers on buying a home. 

What you can afford depends on your income, credit rating, current monthly expenses, down payment amount and interest rate.  You can find out roughly what you can afford by visiting one of many sites that offer free mortgage calculators.  I like Ginnie Mae’s.

But because there are so many factors in determining the amount you would qualify to borrow, it is best to talk with a lender directly.   You don’t have to marry your lender just yet – you can shop around for best service, rate, closing costs, etc., until you actually find the home of your choice.  In an earlier post, I gave you some suggestions for finding a lender.

You may also want to look into one of many state and local programs designed to help buyers.  Connecticut Housing and Finance Authorityoffers loans and  assistance programs targeted at first-time buyers, but not limited to.  You don’t have to contact CHFA directly to obtain a CHFA mortgage – some lenders offer CHFA loans in addition to conventional loans. 

Other programs can be found on the Department of Housing and Urban Development’s (HUD) site.

If you find you need help with managing and paying off existing debt that may be standing in your way of homeownership, HUD also has housing counselors throughout Connecticut available to assist you. 

One word of caution. If you are planning to purchase a home within the next 6 months to a year, don’t make any big purchases.  Try to have as much cash available for closing costs, inspection fees and other expenses that come up when you purchase a house.  And, don’t take out a lot of credit for items like a car, student loan, engagement ring, etc.  More debt and more inquiries will likely lower your credit score and could increase your interest rate on the mortgage and even impact your insurance premium on your homeowner’s policy.

For more articles in this series, visit the category of Homebuying 101.