You have decided it's time to buy a home, interest rates are great, home prices are great and you are financially ready to buy! Now what? How do you figure out how much you can spend? The first stop should be a lender to get a pre-approval done. The loan officer will pull your credit report, verify your income and let you know how much you can spend.
When I meet with a client I will ask them what their comfort level is in a house payment. I do that for a couple reasons but one is to find out if there is something going on that may affect their home purchase. When we calcuate a payment we use the debt on the credit report. You may have some debt that is not there – maybe daycare, a large cell phone bill, medical payments or even a private loan (maybe something you are paying your parents back for). You have to be comfortable with your house payment as you are the one that is responsible for it – not the realtor or the loan officer. Decide what you are comfortable with and stick with it. A mortgage is typically a 30 year commitment and if you can't make that payment, you will end up with a foreclosure and you do not want that.
There are times where you may want to buy at the top of your qualifying numbers. Maybe you have income that is not being included in the qualifications – for example, maybe you get commission income but do not have a long enough history of receivng it to use it in qualifying. Maybe you are married but your spouse is not on the mortgage for some reason.
Once you have decided what you can afford, make sure your realtor and loan officer know that. Make sure they don't push you over your limits. Try to avoid a bidding war that puts you in a home with a higher price than you are comfortable with. Don't buy a home just to keep up with the neighbors or friends.
The bottom line is owning a home that you can afford is a wonderful feeling. Buying a home is a major investment and it's easy to get caught up in the excitement and overspend. But when you find a home that you can afford, it can make all the difference in the world!