How much home can I afford?

Just how much home you can afford relies on two factors: how much money you can borrow, and how much down payment you have available to put down on the home. Thanks to the Internet, you no longer have to sit down with a lender to get an idea of what you can afford, as there are several online resources where buyers can key in a few numbers and get an estimate of how much home they can afford.
Ginnie Mae (a corporation within HUD) has a homeownership mortgage calculator on its Web site at www.ginniemae.gov/index.asp. You key in your gross income and liabilities and the site will spit out a rough estimate of what you can afford. If you want a more detailed estimate, click on ‘‘detailed estimate’’ and key in more parameters to obtain a more precise calculation for your specific region. Bankrate Inc., an Internet consumer finance marketplace that owns and operates a portfolio of Internet-based personal finance channels, also has a good ‘‘How much house can you afford?’’ calculator online at www.bankrate.com/brm/calc/newhouse/cal culator.as.

Using the following parameters, the calculator will produce two estimates for you: affordable mortgage payment and affordable home amount.
❑ Gross Monthly Income: Wages, investments/dividends, alimony received, other income
❑ New Home Info: Down payment, loan term (use thirty years if you aren’t sure), interest rate (use 6.5 percent if you aren’t sure), homeowners insurance (estimate $800 to $2,000, depending on size of the home, location, and your own insurance record), and real estate taxes (check your local tax collector or property appraiser’s Web site for last year’s taxes assessed on a property that you might be interested in)
❑ Monthly Expenses: Car payment, alimony paid, credit card payment, other debts

A word of caution: While this process will give you an idea of what size home you can afford (provided you’re forthcoming with the numbers), don’t confuse it with a ‘‘preapproval’’. A prequalification estimate basically states that you’re qualified for a loan based on a few preliminary questions, but it doesn’t commit a mortgage lender to approve the mortgage. The mortgage lender will still have to conduct a complete review of your financial situation, including your credit report, income, and employment history. The preapproval process is very thorough, with the lender doing much of the work needed for a full-fledged approval, but without your having to identify an exact property for purchase. A lender’s prequalification process will give you a ballpark estimate of how large a mortgage you can afford. It doesn’t matter which lender you obtain this from, since nearly all of them use the same criteria when determining what size monthly mortgage payments, property tax bill, and homeowners insurance you can handle. This will give you a good idea of the maximum mortgage amount you can afford and will help you focus your house search on properties within your price range.