So you want to buy a home but you do not know what you can afford. Unless you're a multi-millionaire, the first thing you need to do is talk to a mortgage loan officer. Getting pre-qualified for a loan gives you an idea of what you can afford in a home. It is an estimate of what the bank would be willing to loan you, based on your income.
Assuming all goes well and you are pre-qualified, you are then able to get serious about the buying process and make an offer on a home you are interested in. If your offer is accepted, you will then need to return to the loan officer for pre-approval for a loan. This is where the bank or loan institution gets serious. The loan officer will need to know not only your full income, but your full credit history. Unfortunately, any outstanding debts or missed payments can negatively impact your ability to get a home loan. The bank needs to know that you can pay them back, or they will not lend you money. They will also need financial details such as pay stubs, bank statements and tax information.
If for some reason you do not qualify for as high a loan as you want, because because you just recently got a better paying job but your employment history was at a lower income, it is possible to get a co-signer who can increase the amount you are eligible for. A co-signer should be a close friend or family member with a higher annual income than you. Their income will then be added to yours, making your pre-approved loan amount higher. Consider, though, that a co-signers dept is also added to your debt, so choose them wisely. Also know that any bad credit history you have will not be canceled out by their good credit. Anyone considering becoming a co-signer needs to realize that they then have certain legal responsibilities to that property, and they need to know exactly what they are.
The home you can afford, and your loan eligibility, are affected by the amount you may have saved for a down payment. A lending institution may favor you if you have a hearty down payment already. A higher down payment not only looks good to lenders, it saves you money in the long run because it is not added to your mortgage, meaning you do not pay interest on it. It is the amount that you have paid outright for your home, and makes you that much closer to being mortgage free.
So happy house-hunting, and do not forget to book an appointment with a mortgage loan officer as soon as possible.