When you first decide to buy a house, one of the most exciting things is deciding where you want to live and what kind of home that you want to invest in. It can be great scouring the internet and the real estate agents for your dream home, but one of the most important things to do is to find out how much you can afford. Knowing what your budget is will help you to avoid any disappointments as well as enabling you to narrow your search options down and save you time.
It can be very difficult to gauge how much money you can afford to spend on a home, and it can be easy to be over optimistic. Getting pre-qualified for a loan will give you a good idea of what your budget is, which can save you a lot of time in the long run. You may have been looking at houses that are way out of your budget and you may even have found your absolute dream home only to find that you cannot afford it. If you know what your limits are, you will avoid any disappointments and you can also save a lot of time in the process.
Getting pre-qualified for a loan should not cost you anything and is an informal procedure to find out what kind of mortgage you can get. It does not obligate you to take out a loan, but is just a method to find out what price range you can afford. Pre-qualification is a good option and also lets the seller know that you are not a time waster, but that you can buy their property if you so wished. Another option would be to get pr-approved for a mortgage although this is a more official process which will grant you a letter of credit.
When you decide to get a pre-qualification on a loan, the mortgage lender will use a debt-to-income ratio to determine how much they will lend you. They take into account your salary, as well as any monthly outgoings and debts to see how much you can afford to pay back in mortgage payments. Having a lot of debts may influence a lenders ability to grant you a higher mortgage unless you are able to pay a larger deposit on the off-set. As a general guideline, a mortgage lender will typically give you a mortgage of 2.5 to 3 times your annual income, although this is not an exact science. This rule is flexible and the lender will still need to take your personal circumstances into account.
It is very important to know approximately how much you can afford on a new home before you start house hunting. It is very easy to waste hours of time looking at homes that are out of your price bracket, and getting pre-qualified will solve this problem. Not only will it save you time, but pre-qualification will also save you a lot of heartache and energy when looking for your dream home.
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