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Buying a house can be one of the biggest purchases you ever make, and finding your price range is an important step to take before you start looking at homes. Knowing your price range ahead of time helps you know that when you find your dream home, you can afford it. Read on to learn how to discover your price range and get started in the homebuying process.

Determine your buying potential

When you decide to start looking for a new home, you may start by searching online or driving through the neighborhood you’d like to live in. But before that, determining your buying potential is a great first step. Visiting with a mortgage loan officer, you’re able to get prequalified for a loan and learn how much you can spend to still live a comfortable lifestyle. This can also provide extra confidence when negotiating with a seller.

When you meet with your banker, they will ask you for several items, like paystubs, tax information and bank statements. They may also ask if you own any land, if you pay child support, if you've recently bought a car, or similar questions. Make sure to disclose pay increases at work, annual bonuses that may show up on your bank statement as a large deposit, and any beneficial investment account balances. All of these can affect the final amount you’re able to spend.

Often, your banker will recommend limiting the amount you spend on housing to 25% of your monthly take-home pay. Some bankers also use a measure called the debt-to-income ratio, or DTI, which factors in debts such as credit cards, car loans, student loans and your mortgage. This is recommended to be at 43% or below.

There are some other costs associated with buying a house and the mortgage that can come with it, including the taxes, insurance and utilities to live in the home. When determining your total budget, be sure to include those costs in the final number, and set aside money for future savings and home maintenance as well. This will help you afford the home without having to change your lifestyle. Keep in mind that the amount you are approved to borrow may not necessarily be what you want to spend.

Questions to ask before offering on a home

Before putting in an offer on a home, there are some questions you and your banker should talk about first. These include:

• How much money do I want to save each month for retirement or travel?

• Do I have enough saved for closing costs or unexpected expenses?

• How much can I put toward a down payment without emptying my savings account?

• What is my total monthly debt?

Figuring out the answers to these questions and beyond will ensure that the home you purchase can be a comfortable living situation and a smart investment. Be sure to ask how your banker can help, as they may have more resources and assistance program ideas to help you purchase your dream home!