Can I Afford This House?

Buying a house is likely the biggest single investment you’ll ever make, but it doesn’t have to be the hardest.

Here’s a 4-step plan for finding a home that matches your dreams with your finances.

STEP 1 - Do your "home" work.

Take some time to develop a financial snapshot of your family. Get copies of and review your credit reports. Check for accuracy and clear up any misinformation. For more information on this subject, view Credit Bureau Records.

Next, assemble information about your current finances, including expenses, income, savings, market value and location of property you currently own and current debt.

Your lender will need all of this, as well as your Social Security numbers, names, addresses and account numbers of current creditors and financial institutions.

STEP 2 - Make two lists—your "wish" ­list and your "can't live without" list.

How close do you need to be to schools, places of worship, work, shop­ping or recreational facilities? Do you want a brand-new home or a resale? How many bedrooms and bathrooms do you need now—and how many will you need later? Do you need a big backyard, deck or garage?

Ask these questions before looking at a single place. You need to know what you must have and what you’re willing to walk away from so you find a house at a price you’re comfortable paying.

STEP 3 - Settle on a realistic buying range.

Many lenders believe you can afford a house if its price is under 2½ times your household's annual gross income. You need to consider both how much out-of-pocket expense you can afford, as well as the size of loan for which you qualify.

• What down payment and fees can you afford? Many lenders want 3% down. Some, like Navy Federal, offer 0% down financing. The more you put down, the lower your monthly payments will be. Also consider closing costs, such as loan fees (often called points), attorney's fees and inspection fees.
• Qualify for a loan: The amount you qualify for will be determined by many things such as income, debt and credit history. If you don't qualify, you may have to buy a less expensive home, pay off some debts or delay your purchase until your income increases. Also check out other loan options or speak to another lender.

STEP 4 - Select the right mortgage.

You have many more options today than the traditional conventional mortgage, and they are designed to make home ownership affordable for more people. Your best choice depends on how long you plan to stay in the home, how large a monthly payment you can handle and what help you can get, such as Veterans Administration loan eligibility.

• If the mortgage is for a home you plan to live in for many years, then a fixed-rate loan makes sense. With fixed rates, you want the shortest term and highest down payment you can afford—the faster you own the house, the less you pay in interest. Make extra payments when you can. A biweekly payment schedule can help with that goal.
• If you might move in 5—10 years, explore interest-only, balloon or adjustable rate mortgages (ARMs). You may qualify for lower initial interest rates and a larger loan. Plus, your initial monthly payments could be as much as 25% lower than for a traditional fixed-rate loan.
• Investigate your eligibility for our Veterans Administration mortgage. If you're eligible for this or Navy Federal's 0%-down conventional mortgage, you won't need to come up with any down payment for a traditional fixed-rate loan, although there will be closing costs.
• You can lower your interest rate by paying more points up front, thus reducing the size of your monthly payment.

Consult our mortgage calculators or use Navy Federal’s free mortgage counseling to get matched up with the best solution for you.