Resources
How Much Can You Afford?

How Much Can You Afford?

Understanding how much you can afford is one of the most important rules of home buying. Depending on your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of the house, and even what type of financing you choose.

Bear in mind, however, that lenders will look at more than just your income to determine the size of the loan. Likewise, you may find that there are some creative financing options that can help boost your purchasing power.

Loan prequalification vs. preapproval
One of the best ways to determine your budget is to have your real estate agent or lender prequalify you for a loan. Prequalification is different from preapproval, because it is only an estimate of what you'll be able to afford. On the other hand, preapproval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a specified amount.

What factors are important to lenders?
Banks and lending institutions will use several criteria to determine how much money they'll agree to lend. These include:

  • Your gross monthly income
  • Your credit history
  • The amount of your outstanding debts
  • Your savings--or the amount of money you have available for a down payment and closing costs
  • Your choice of mortgage (i.e. 30-year, FHA, etc.)
  • Current interest rates

Two important ratios
Lenders also use your financial information to figure out two, very important ratios: the debt-to-income ratio and the housing expense ratio.

  • Debt-to-income ratio
    Many lenders use a rule of thumb that the amount of debt you are paying on each month (car payment, student loan, credit card, etc,) shouldn't exceed more than 36 percent of your gross monthly income. FHA loans are slightly more lenient.

  • Housing expense ratio
    It is generally difficult to obtain a loan if the mortgage payment will be more than 28 to 33 percent of your gross monthly income.

Down payments make a difference
If you can make a large down payment, lenders may be more lenient with their qualifying ratios. For example, a person with a 20 percent down payment may be qualified with the 33 percent housing expense ratio, while someone with a 5 percent down payment is held to the stricter 28 percent ratio.

Other ways to improve your purchasing power

  • Gifts
    If you're having trouble saving money, many lenders will allow you to use gift funds for the down payment and closing costs. However, most lenders require a "gift letter" stating the gift doesn't have to be repaid, and will also require you to pay at least a portion of the down payment with your own cash.

  • Negotiating Closing Costs
    Through negotiation, some sellers may agree to pay all or most of your closing costs (for example, if you agree to meet their full asking price). If you choose to try this, make sure to ask your real estate agent for advice.

  • Loan Programs
    Many local governments have special loan programs designed to help first-time homebuyers. Loans may be available at reduced interest rates, or with little or no down payments. Check with your local housing authority for more information.

  • Loan Types
    Some homebuyers choose Adjustable Rate Mortgages (ARMs) because of low initial interest rates. Others opt for 30-year loans because they have lower monthly payments than 15-year loans. There are significant differences between different loans, so make sure to discuss the pros and cons of different loans with your agent or lender before making a decision.
Learn more about -

Check out our Guide to Columbus Ohio HUD and Foreclosure Homes for Sale.

Learn more about Columbus and Central Ohio Home Communities, school districts, price ranges, and taxes.

Bexley Homes - Bexley is a city in Franklin County, Ohio, United States. Incorporated as a village in 1908, Bexley is an old tree-lined suburb of Ohio's capital, Columbus, located on the banks of Alum Creek right next to Driving Park.
Canal Winchester Homes - Canal Winchester is a village in Fairfield and Franklin counties in the U.S. state of Ohio. The population was 4,478 at the 2000 census.
Columbus Homes - Columbus is the capital and the largest city of the U.S. state of Ohio. Located near the geographic center of the state, Columbus is the county seat of Franklin County, although parts of the city also extend into Delaware and Fairfield counties.
Delaware Homes - Delaware is a city in the U.S. state of Ohio and the county seat of Delaware County.
Dublin Homes - Dublin is a city in Franklin, Delaware, and Union counties in the U.S. state of Ohio. The population was 31,392 at the 2000 census. In 2007, the population was estimated to be 37,954, and Dublin continues to be one of the fastest-growing suburbs of Columbus.
Gahanna Homes - Gahanna is a city in Franklin County, Ohio, United States. The population was 32,636 at the 2000 census.
Grandview Heights Homes - Grandview Heights is a city in Franklin County, Ohio, United States. The population was 6,695 at the 2000 census.
Granville Homes - Granville is a village in Licking County, Ohio, United States, founded by settlers from Granville, Massachusetts, a town of which it now has three times the population.
Grove City Homes - Grove City, founded in 1852, is a city in Franklin County, Ohio, United States. The population was 27,075 at the 2000 census. It is a suburb of Columbus.
Groveport Homes - Groveport is a village in Franklin County, Ohio, United States. The population was 3,865 at the 2000 census, and estimated to be 4,926 as of July 2006.
Hilliard Homes - Hilliard is a city in Franklin County, Ohio, United States. The population was 24,230 at the 2000 census. Hilliard's population was estimated to be 26,656 in 2005, and the city continues to grow.
Lewis Center Homes - Lewis Center is an unincorporated community in northwestern Orange Township, Delaware County, Ohio, United States, located between Columbus and Delaware.
New Albany Homes - New Albany is a village in Franklin and Licking Counties in the U.S. state of Ohio, just northeast of the state capital of Columbus.
Pataskala Homes - Pataskala is a city in Licking County, Ohio, United States. The population was 10,249 at the 2000 census; a 2006 estimate reported a population of 12,643.
Pickerington Homes - Pickerington is a city situated in Fairfield and Franklin counties in the central region of the U.S. state of Ohio.
Powell Homes - Powell is a city in Delaware County, Ohio, United States. The population was 6,247 at the 2000 census.
Reynoldsburg Homes - Reynoldsburg is a city in Fairfield, Franklin, and Licking counties in the U.S. state of Ohio.
Sunbury Homes - Sunbury is a village in Delaware County, Ohio, United States. The population was 2,630 at the 2000 census, and estimated to be 3,252 as of July 1, 2006.
Upper Arlington Homes - Upper Arlington is a suburban city in Franklin County, Ohio, United States, on the northwest side of the Columbus metropolitan area.
Westerville Homes - Westerville is a city in Franklin and Delaware Counties in the U.S. state of Ohio. It is a suburb of Columbus. The population was 35,318 at the 2000 census.
Worthington Homes - Worthington is a city in Franklin County, Ohio, United States. The population was 14,125 at the 2000 census.


Looking for Foreclosures, Short Sales or HUD Homes for Sale in Columbus or Central Ohio?
Foreclosure Buyer's Guide for Columbus Ohio Homes for Sale!
What is Foreclosure?
What is Foreclosure VS Short Sale?

Looking for NEW Homes for Sale in Columbus or Central Ohio?
NewHomeColumbusOhio.com presents Regency at Highland Lakes!