You may hear that buying a home may be cheaper than renting. So how much house can you afford?

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There are many factors that will help you determine how much you should spend on a home. It is so important to speak with a reputable lender to help you figure this out. Getting a mortgage pre-approval is an important first step. A good lender will ask you the right questions and help you to get your financial ducks in a row. Here are some of the things that they will look at.

Your mortgage payment will depend on your income. The general rule of thumb is that you can purchase a home two or three times your annual income. Of course this is not the only factor to consider.

You need to take a look at your debt. Add up the totals from your credit card balances, car loans, college loans and credit sources. There is an effective ratio that you can use called the 28/36 rule. The 28 refers to your monthly housing payment including home insurance and property tax. The 36 refers to your debt-to-income ratio. This ratio refers to the amount of money you have in debt in relation to your income.

Your down payment is a third factor to consider when figuring out your affordability. The more you put down the better. If you can put 20% or more your rates and loan terms will improve. Please note that there are different loans available if you do not have 20% available. You may get a higher rate or pay mortgage insurance to get there but it can be a great choice if needed.

Preparation is the first step for making a smart purchase. A good realtor and lender are great sources of knowledge to help you make educated decisions toward a smart and affordable home purchase.