This is not what a lender calculates as the maximum you qualify for. It is your estimate of what you are financially prepared to part with for homeownership, given not only your income and obligations, but your lifestyle and job stability.
What lifestyle expenses do you incur? Fifty dollars a week for lattes? A $5,000 annual vacation? How much goes into your retirement account? Now, forward to likely upcoming expenses. How soon will you want a new car? Furniture? What of these things are you prepared to trim?
"You as a buyer need to find out what your comfort zone is going to be as far as a monthly payment, and what you are comfortable with as the purchase price of the house," said Ashley B. Richardson, an agent with Coldwell Banker in Lutherville. "Some people may qualify for a whole lot more than they are comfortable with."
3. What's a good credit score nowadays?
The better interest rates go to people whose credit scores are at least 720, so check your credit reports before seeking a loan. Why does that matter?
"If you have a $200,000 mortgage, a 1 percent difference in your loan rate is almost $2,000 in interest a year," said Steven Isberg, a finance professor at the University of Baltimore and senior research fellow at the Credit Research Foundation.
Under federal law, you can obtain one free copy a year from each of the three national credit-reporting agencies: Equifax, Experian and TransUnion. Go to annualcreditreport.com.
"If there are problems with your credit report, make sure you get them corrected. It is much easier to work with the creditor first," Isberg said.
If the negative information is accurate, improve your habits: Pay on time. Try to pay in full every month. The closer you get to your credit limit, the riskier you appear to a lender, Isberg said.
"It's not a good idea to spend up to your credit limit even if you are paying it off every month. What shows up is you are running up your credit," he said.
4. How should I go about finding a lender?
Just like finding a pair of jeans. Shop around for what fits you best. Remember, different lenders participate in different programs, so talking to a variety of lenders and brokers and educating yourself on what's available is in your best interest.
If you have an account at a bank, talk to a loan officer there. Talk to the lender(s) who work with your real estate agent. Look online. Go to the library.
