How do I know what I can afford?

The best way to know which homes you can afford is to make an appointment with a lender at your bank, or a mortgage broker, and get pre-approved for a mortgage.

WHAT DOES IT MEAN TO GET PRE-QUALIFIED?
Pre-approval means simply that a qualified lender will look at your credit history and income, compare it with your current monthly obligations, and see what you can realistically afford. It does NOT mean you have already been approved for a loan, rather it is a predictor of the likelihood you will get a loan.

SHOULDN'T I FIND A HOUSE I LIKE FIRST??
NO! SPEAKING WITH A LENDER BEFORE YOU HIT THE STREETS WITH A REALTOR WILL BENEFIT YOU IN THE FOLLOWING WAYS:

YOU'LL AVOID DISAPPOINTMENT: Pre-approval helps you know which houses you can realistically afford. Learning about credit report errors, high debt balances, and an insufficient down payment early will give you time to correct the problem before you apply for a loan, and before you fall in love with a house you are unable to purchase.

YOU'LL SAVE TIME: Knowing ahead of time what you can afford helps narrow the choices, which means you'll find what you want faster and with less run around.

YOU CAN PLAN WISELY AND ESTABLISH PRIORITIES. No home is going to be perfect, no matter how much you pay. Going through the pre-qualification process helps you focus on which of the features in a home are most important to you, and helps you plan your search based on your pre-determined criteria.

YOUR OFFER WILL BE MORE ATTRACTIVE TO THE SELLER: They'll know you can afford it, and, if they have more than one offer, they'll be more likely to accept yours if they know your financing is in place.

YOUR CLOSING WILL GO SMOOTHER: Lenders can detect any potential problems that might make obtaining a loan difficult. If there is something in your credit which could keep you from qualifying for the home you've chosen, it should have been identified and dealt with during the pre-approval process. By the time you get to closing there is less likely to be any surprises, which would hamper your ability to purchase.

(Keep in mind, a lender will most likely pre-approve you at the top of your ability to buy, which means that homes that you consider must be in that range or lower. If you try to go significantly over your approval rate by more than five or ten percent, you will risk losing the home, and possibly the opportunity to buy a home that would have been more suitable).