26 July 2013
How Much House Can You Afford? Plan Ahead Before You Buy

Whether you’re a first-time home buyer, or you plan to move up to accommodate a new member of the family, buying a home can be one of the most important “moves” you’ll make.

However, finding the right home requires some thinking, a little planning, and a visit to your local mortgage lender to determine just how much house you can afford.

How much house can you afford? Before you start your search for your next home, find out how much home you can comfortably afford.

Your local financial institution is an excellent starting point. Your bank can pre-qualify or pre-approve you for a certain mortgage amount. What’s the difference between these two terms?

A bank, or other mortgage lender, may pre-qualify you for $200,000. That means, based on the information you provided, the bank may loan you $200,000 for a home mortgage. However, pre-qualification is based on the information you provide. It hasn’t been verified by the bank, so you may, or may NOT, get a mortgage if you’re pre-qualified.

When you’re pre-approved for a $200,000 mortgage, the bank has already conducted background checks, pulled credit reports, tracked employment history and conducted “due diligence” – research – to actually approve your loan application, even though you haven’t purchased a home yet.

Home sellers love buyers who have been pre-approved by a mortgage lending bank, because the seller is assured that you, the buyer, will be able to secure the amount required to purchase that seller’s home.

Good advice on debt-to-income ratios:  Mike Gould, Senior Vice President / Residential Mortgage Lending Manager at Nevada State Bank, explains debt-to-income ratios.  “When financing your home, a common guideline for debt-to-income ratios is 33/38. Your housing costs may consume up to 33 percent of your monthly income. Add your monthly consumer debt to the housing costs, and it should take no more than 38 percent of your monthly income to meet those obligations. Exceptions to these debt-to-income rules may be granted if you have strong compensating factors like a large down payment or high credit scores.”

Keep an open mind. You may have a picture in your mind of the perfect home for your family. When you start doing “drive-bys” looking at homes on the market, you may discover that your perfect home isn’t in your price range. Keep your mind open to discover homes that might not be ideal, but could work with a new coat of paint or a new backyard fence.

Before you talk to a real estate agent, before you start dreaming of your dream home, visit the mortgage expert at your bank. Working with your local bank should clear up any confusion and eliminate a lot of stress before you go on your first walk-through.

You’ll feel better as you search, knowing that your bank wants to help you find the perfect home, and is behind you every step of the way.

For information about home loans* from Nevada State Bank, please visit nsbank.com/mortgage, stop by any branch, or call us at 800-727-4743.

 

*Loans subject to credit and collateral approval. Terms and conditions apply.

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice.

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