Once you know where you want to live, it's time to figure out what you can afford. Having a realistic price range before you start looking at homes will help you to avoid falling in love with a dream home you can't afford and taking out a loan you may struggle to repay. There are several factors to consider when deciding on a price range for your new home, including how much money you have saved, what you will earn off the sale of your existing house, and how much you may be qualified to borrow based on your mortgage pre-approval. When you're pre-approved for a mortgage loan, you'll know your borrowing capacity, what price range you should be looking in, and you'll probably have more leverage during negotiations. Check out the information below to get a sense of how much you can afford when buying a new home.
You know if you need a two- or four-bedroom home, how much land you want, the style of home you're looking for, and how much general square footage you need. Review real estate listings in the neighborhoods you like to see how much the homes with the amenities and layout you want are going for. This will give you a baseline to work with, though you will likely need to adjust as you go along. Speak to a real estate agent to get an even better sense of what's available at different prices where you're searching.
Now that you know the price range of homes that have what you want, it's time to figure out what you can afford and where you may need to make compromises. If you've been saving for a home, find out how much you have available for a down payment. Ideally, you'll want to be able to put down at least 20 percent of the home's purchase price. If you don't have that much for a down payment, there are other loan programs that may be available to help you buy a home. However, most will require mortgage insurance if you are unable put down at least 20 percent.
Check the balances in your HomeBuyer Savings account, money market accounts and standard savings accounts to see how much you can afford if you purchase a home now, or how much more you need to save to be in your goal price range. You may want to consider transferring funds to a high-interest savings account like a certificate of deposit for a few months to earn more, faster.
If you're a first-time homebuyer, you can skip down to the next section. However, if you already own a home or condo, money from the sale of that home could potentially be put toward the purchase of your next house. If your home isn't on the market already, get an appraisal and consider what you want your asking price to be. Then speak to your current lender to find out how much of the sale price needs to go toward paying off your mortgage. Add up your potential profits from the sale and your total savings to figure out how much you have available to put down on the purchase of your new home.
When buying a home, having a mortgage pre-approval helps you search and negotiate. The mortgage loan pre-approval also helps you set a realistic budget when you're looking at houses so you don't overextend your credit. A Home Loan Advisor at Citizens Bank can get you started with a mortgage pre-approval assessment which will factor in your savings, potential income from the sale of your home, and more. If you're pre-approved, you'll know exactly how much home you can afford and can start touring homes with the intent of making an offer. Once you've found your dream home, your Citizens Bank Home Loan Advisor will help you complete your mortgage application.
If for some reason you're not pre-approved the first time or didn't qualify for as much as you had hoped, our Home Loan Advisors can help you identify ways to strengthen your mortgage application, like improving your credit score, which may lead to a better chance for approval in the future. For more information about the mortgage application process or savings accounts that can help you prepare for owning a home, speak to a Home Loan Advisor from Citizens Bank.