How Much House Can I Afford?
House hunting begins at home and requires planning. The first step toward buying a house is to Contact Us so we can help determine the strategy that best fits your unique situation. Before grabbing road maps or turning on your GPS to start looking at homes, it’s important to know exactly what you are looking for. Most importantly, you need to know how much money you can afford to spend on a home.
This is where arranging financing becomes essential. In today’s real estate market, sellers typically will not accept an offer without proper financing information, and sometimes additional financial documentation. If you do not already have a loan officer you would like to work with, you can find one through local listings. Even better, we can recommend loan officers who regularly finance purchases for our clients. These professionals can be found in our Business Directory.
In addition to financing, we will need to review required Agency Disclosure forms, including Understanding Whom Real Estate Agents Represent. This form is used when you are considered an “unrepresented party,” meaning you have not signed an Exclusive Right to Represent the Buyer/Tenant Agreement. That agreement clearly outlines your responsibilities as a buyer and our responsibilities as your licensed real estate agent.
Without this agreement in place, our agents are limited in what they can discuss about properties due to confidentiality requirements in real estate transactions. Until the agreement is signed, we legally function as a “sub-agent” representing the seller. For this reason, we are not permitted to show homes without the agreement in place.
Today’s use of the Internet and email allows much of the early work in the home-buying process to be completed before stepping inside a house. A major part of this early stage is arranging financing, beginning with pre-qualification. You may contact any qualified loan officer you feel comfortable working with and then provide us with a copy of your pre-qualification letter. Under the ethics rules established by the Maryland Real Estate Commission, any personal or financial information you share with us must be kept confidential unless you authorize its release to a third party.
Knowing your affordable price range helps focus your house hunt. There is little value in viewing a $300,000 home if your budget allows for only $200,000. Likewise, it is not productive to tour homes if financing cannot be secured due to credit challenges such as late payments, bankruptcies, or foreclosures. However, these issues should not discourage you from seeking pre-qualification. There are many loan programs available, and one may be well-suited to your situation.
Some lenders charge a small upfront fee to complete verifications and issue a mortgage pre-approval. Other lenders, including those we typically work with, provide this service at no cost. A pre-approval can strengthen your negotiating position by allowing you to present yourself as a more qualified buyer. Ultimately, you have the right to choose whichever mortgage lender you prefer.
The amount of house you can afford depends on two main factors:
- Your monthly housing payment, and
- The amount you can invest as a down payment.
Monthly housing costs typically include principal and interest on the mortgage, property taxes, and hazard insurance. These costs are commonly referred to as P.I.T.I. (Principal, Interest, Taxes, and Insurance). Depending on the lender and property type, additional monthly costs may include homeowners association dues, condominium fees, and mortgage insurance.