Step 1:  Get Pre-Approved

The only way to truly know how much home you can afford is to ask a lender.  Getting pre-approved lets you know how much you can afford before shopping for your home.

What to Know and Where to Find it:

Income – Stable income assures a lender you can make your monthly mortgage payments.

Debt – Add up auto payments, credits card payments, student loans, alimony, child support, other.

Cash – Total assets, amount in checking and savings accounts and other investments.

Step 2:  Determine Monthly Mortgage Payment Including Escrow

Escrow is a third party account used to retain funds including the property owner’s real estate taxes and hazard insurance premiums.

Step 3:  Understand Bills Associated with Home Ownership

Estimate that it will cost about one percent of the purchase price year to maintain your home.  For a $200,000 home, you should budget approximately $2000 per year, or approximately $170 per month for maintenance.  Condominiums and co-ops will have regular maintenance fees.  You will also have utilities, gas, electric, water, sewage, cable, telephone, insurance, property tax, etc.

Step 4:  Compare the Total Costs to Your Monthly Salary

Subtract the total in Step 3 from your monthly gross income.

Step 5:  Test Those Numbers for Six Months

•    Set up a new bank account.
•    Subtract your current monthly rent from your Step 2 total.
•    Deposit the difference in these numbers into the new bank account on the 1st day of each month.
•    After six months, determine how simple or straining the process turned out to be.

Step 6:  Establish Future Priorities and Plan for the Unexpected

•    What are your needs for the new home –furniture, lawn equipment, barbecue grill?
•    Is a new car in your near future?
•    Do you plan to have children?
•    How long can you survive if you lost your job?

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