How Much House?

House hunting begins at home—with planning. The first step toward buying a house is to sit down. Before you grab the road maps and hit the streets, you need to do a little planning. We call it pre-qualifying. Simply, it's determining how much house you can afford to buy. Knowing your affordable price range will bring your house-hunting into focus. Many lenders, for a small up-front fee, will send out all required verification and pre-approve you for a mortgage, allowing you the opportunity to negotiate as a cash buyer.

How much house you can afford to buy depends on two things: how much you can afford for the monthly housing payment, and how much you can invest in the down payment. Monthly payments include principal and interest on the mortgage loan, and property taxes and insurance against fire and other hazards. These four costs are often abbreviated P.I.T.I. For some buyers and lenders, monthly housing costs may also include homeowners association dues, condominium fees, and mortgage insurance.

One Caution

The larger the down payment, the less money you need to borrow. This means a lower monthly payment. However, remember that in addition to your down payment and monthly payments, you will need money to pay for closing costs, moving, appliances, household setup, a reserve for family emergencies, and other miscellaneous items. So don't plan to put your last penny down on the closing table.