How much house can I afford?

Question: Dear Kari, I would like to buy my first home, but how will I know if I can afford it? Answer: Considering becoming a first-time homebuyer is exciting but comes with unknown questions. Usually, potential buyers start to look online at homes with lovely pictures and get really excited. Then, questions flood through their mind like, "What am I doing? Can I afford this? Should I keep renting?" Lenders calculate what you can afford. They may typically follow this guideline: Add up the house payment including taxes, insurance, HOA dues, etc., plus all of your other obligations, such as car payments, student loans, credit card debts and any others you may have, and it should be around 43 percent of your gross monthly income. It is good to note this is only a guideline estimate and each lender's underwriter takes each situation case by case. Some lenders will grant an exception to this rule and allow you a higher debt ratio with strong compensating factors; however, others will not. Start by asking yourself these questions: • Do I have a steady source of income, such as being on my job for two or more years? • Do I have a good record of paying my bills on time? • Do I have money saved for a down payment and closing costs (title insurance, etc.)? • Are the payments on my outstanding long-term debts such as credit cards, student loans or car payments manageable? • Do I have a budget plan that accounts for the costs of owning and maintaining a home along with other major future expenses such as buying a car, taking a vacation, saving for college or raising a family? Weigh the facts of renting versus owning. Consider you lose the chance to build equity and can't take advantage of tax benefits, and you cannot make changes to your living space. Wouldn't it be nice to customize your home the way you want it? Another big plus to owning your own home is that your mortgage interest and property taxes will be deductible, and this will assist you in dealing with your new financial responsibilities. Your friends and family who are already homeowners will tell you what a treat that can be. If you decide to dive into the buying market, pat yourself on the back and get started. The very first step is to select a professional, trusted mortgage consultant, who will ask you to complete a loan application, pull your credit and determine how much of a home you can comfortably afford. A mortgage consultant should be a trusted adviser, providing sound advice on getting a home without a payment that keeps you awake at night. After you have received your mortgage pre-approval, it's time to shop! To make sure your home will fit your needs, make a list of your priorities: location, size, schools, job location, access to the freeway, public transportation and so forth. When looking at specific homes, consider if the home has enough room for today and the future; if your furniture will fit in the spaces, if there is enough storage space for your belongings. Consider the property in all the seasons of the year and look at all current or past reports or written facts on the property. If you find a particular area you like, consider talking with the people that live there and ask what their experience in the area has been. After you make your dream wish list, know that even the second-time buyer usually does quite a bit of trade-offs before the ultimate purchase. You should also decide if you are willing (or financially able) to make some changes to a potential home, such as new carpet, paint, landscaping or appliances. It would be wise to check out these costs up front and keep them in the back of your mind. It would not be fun to max out your mortgage payments and then have to live with old carpet for a few years. Now you are ready to go house hunting! Think of this process as a fun scavenger hunt. One way to start is to go to weekend open houses. A plus to viewing open houses is you will have the opportunity to speak with several agents. If you have not yet found one, ask several questions and maybe you'll find the perfect agent to help guide you through the process. Agents can be a wealth of helpful and necessary information, as well as aid you through the process to the finish line of a proud homeowner.