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You know what your credit history shows and what your credit score is now. You know what you should avoid and what you should have in a good mortgage. You have a lender picked out now. So how do you know what size of house you can get? Well, your lender is going to determine that for you.

That’s not to say you can’t get a house you want, but your lender tell you how much they are willing to finance a mortgage for you. You’ll know you have a top dollar when you meet with a realtor. The old rule of thumb was your income should be 3 times your mortgage. Meaning you make $40,000 a year, you could qualify for a $120,000 house.

Where this rule-of-thumb doesn’t work so much now though, lenders take other factors into consideration when determining what you can afford. The main thing they are looking is that all of these expenses aren’t more than 50% of your monthly income.

These expenses have impact on what a lender will see you can afford:

  • Alimony Payments
  • Auto Loans
  • Child Support Payments
  • Credit Card Debt
  • Student Loans

A lender also has to consider your potential property expenses:

  • Homeowners Insurance
  • HOA Fees
  • Private Mortgage Insurance
  • Property Taxes

Once your lender comes back and tells you want you can afford in a house, you can perhaps get more house if you have a down payment to offer. That down payment will need to bring the cost of the house to the top dollar the lender is willing to lend.

For example they have approved you for a $140,000 house but the house of your dreams is $160,000. With a $20,000 down payment, you can now get the house you want at the price the lender is willing to fund. A down payment can make a difference in your monthly payment just as much as the interest rate because it can bring down the total amount you need to borrow.

The last thing you want to do though is after you have closed on the house is go out and charge up all your credit cards or buy new furniture on credit. Your lender has determined how much mortgage you can comfortably afford, so don’t go getting more monthly payments that will strain your budget.