How Much Can You Afford for a Home?
When you are shopping for a home, it makes sense to know your price range. Often the first step a real estate agent will take is prequalify you for a loan. This might be a ballpark figure or estimate based on typical loan setups, or you may formally apply for a loan and become preapproved. When you are preapproved, you need to submit various documents that specify your income and expenses. The lender then gives you a letter specifying the loan amount you qualify for based on your specific financial situation. Sellers prefer preapproved buyers because they know that the buyer will not have problems securing a loan for the home. What to know how much you can afford? To start, you need to total all of your income. Next, separately total all of your debt obligations: car payment, credit card balance, and so on. You can then use this information to get a rough estimate or a formal preapproval. Getting a ballpark figure Roughly, you can afford two to two-and-a-half times your gross in