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by sitecore\kmcgrigg on June 28, 2011

Before you begin the home buying process, it’s important determine exactly how much money you can afford to spend on your new home. Knowing this information upfront can save you a lot of time and effort and is one of the keys to long-term successful homeownership. Here’s how:

To determine how much you can realistically afford, you’ll want to determine how much you will have for a down payment. In general, you will need to have at least 10 percent of the home’s price for a down payment. If you want the best loan terms, you should plan to have at least 20 percent for a down payment.

When making lending decisions, banks also consider the cost of housing in comparison to your income. Your monthly housing expenses including your mortgage, taxes, and insurance should be no more than 28 percent of your monthly income. Of course, your other debts also play a factor. In general, lenders want your total debt-to-income ratio – which includes things like credit card debt, child support payments, and student loans – to be no more than 36 percent.

So, in addition to a good credit history, these are some of the things that lenders are looking for. But it is very important to remember that qualifying for a loan and being able to afford that loan are two different things. Before you make such a large commitment, you’ll want to consider a number of other factors too. For example, what are your other monthly expenses? And how secure is your income? In other words, what is your comfort level?

Keep in mind that there are some hidden costs of homeownership that you’ll need to factor in to your budget when you become a homeowner such as maintenance costs, association dues, and utilities.

You might also enjoy:

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How to manage money when you're self employed 

Money Management International (MMI), a HUD-certified housing counseling agency, is celebrating National Homeownership Month throughout June by providing potential and existing homeowners with valuable tips and tools. Visit the updated Homeownership and Home Loans section of to learn more. 

Posted in:  Homeownership, Mortgages


Brandon says:
February 03, 2012

Getting qualified for a loan and being able to afford it are two different things. Well said! I can't tell you how many times I've explained that same concept to our readers. Set a budget first ... talk to a lender second.

eKim says:
June 30, 2011

Are these percentages (28% and 36%) of your net income/take home pay, or your gross income (before taxes, health ins, etc)?

Kim at MMI says:
July 01, 2011

Hi eKim, Those guidelines are based on your gross income, but as Kirk points out in his comment, different people have different comfort levels. Qualifying for a loan and being able to afford the loan are two different things.

Kirk Munsch says:
June 29, 2011

Roadmap to Peaceful Home Owning. 1. Be debt-free . . . yes, debt-free. 2. Have a fully funded emergency fund. 3. 20% down to avoid PMI. 4. Monthly PITI+HOA payment on a 15 year fixed mortgage is no more than 25% of the "take home" pay. Not income, "take home." 5. Do not buy as an investment, buy to live in. If you make money on it someday wonderful but do not let that be your focus. 6. Do not borrow money to furnish this home. 7. If you cannot do the above, you just are not ready to buy yet.

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