Many home buyers may get the impulse to go out and search for a new home. They may be passing an open house and be immediately attracted to it. An acquaintance may be selling their house which they have always liked. The reality of this type of situation is that often times these people end up wasting their time and ultimately disappointed because they have do no preparation or figured out how much they can afford before entering the marketplace.
A better (and less frustrating way) to do this is to prepare before you go house hunting. You need to figure out how much you can afford so that you end up looking at houses that are within your price range. This will depend on a few factors – the amount you have saved up to cover the down payment and closing costs, the financial terms offered by your lender, and your total gross income.
Generally speaking your down payment can range from 10 to 20 percent of the cost of the home. However this can be much less if you are looking to take out an FHA loan. In that instance it can be as low as 3.75 percent of the home cost. Closing costs vary according to the part of the country that you live in.
The financial terms offered by the lender affects the amount of home you can afford and these constantly change due to market conditions and the economy. Interest rates, mortgage terms, points etc, are all part of these financial terms.
Your credit score will also affect what you can afford as lenders often use a higher interest rate for people with poorer credit histories. Items such as collection accounts and delinquencies will adversely affect the report and should be cleaned up well in advance of applying for a home loan.
A useful way to figure out your financial situation is to use a mortgage payment calculator. You can enter in a variety of options which can be used to give you monthly payments for different interest rates, down payments etc. This will give you a very good idea of where you stand and what you can afford.
Finally once you are ready to go shopping for a home you should find a good realtor who can advise you and help you with the many aspects of buying a home.