Debra Lester Realtor for Huntsville, Madison  County, Alabama - Selling Homes in Madison, Huntsville and North Alabama Debra Lester Realtor for Huntsville, Madison  County, Alabama - Selling Homes in Madison, Huntsville and North Alabama






 

HOW MUCH CAN YOU AFFORD?

Being aware of how much you can afford is one of the most important rules of home buying. Depending on your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of the house, and even what type of financing you choose. A general guideline to consider is that most buyers purchase a home that costs about 1 to 2 times their current annual income.

To be sure your financial situation is order and to be in the best negotiating position once you find the right home, you should become pre-qualified with a mortgage lender. The lender will discuss the best type of financing for your needs and will give you a Good Faith Estimate. This will show the breakdown of the total cost (including down payment, closing costs and prepaid items) you will need to invest in a home. This estimate will also show you the interest rate and total monthly investment including taxes and insurance.

The lender will review your financial information and will be looking for two very important numbers:

  • Debt-To-Income Ratio - Your total debt divided by your gross income. This number should not be over 41%
  • Credit Scores - High credit scores will allow you to get the lowest interest rates available on your home mortgage
Lenders may be more lenient with their qualifying ratios if you make a larger down payment. A down payment of 20% or more will also exempt you from the mortgage insurance premium usually added to the principle, interest and taxes on loans with less than 20% equity.

Once you have been qualified by your lender, you will receive a Pre-approval letter stating you have been pre-approved for a certain amount. You are now in great negotiating position since you are now a qualified and pre-approved buyer - something every seller wants to know!


 
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