2022 New Year’s resolutions for homebuyers

There’s nothing wrong with that vision, other than you may not be able to afford it. And, with interest rates likely rising in 2022, it’s more important than ever to know exactly what you can afford to spend on your dream home.

Start with the four key components of affordability: How much you have saved for a down payment; how much your household earns; what debt you carry; and, your credit score. Your credit score will directly affect the interest rate on the loan, which has a multiplier effect on how much you can borrow. Your debt service (how much you pay each month) will be subtracted from the total amount you can spend on your mortgage, taxes and homeowners insurance.

Once you have a handle on these four components, it’s time to get preapproved for your loan.

Home buyer resolution 2: Get preapproved for your mortgage.

When you get preapproved, your lender agrees in writing to fund your loan, provided the home you choose appraises out in value. Getting preapproved allows you to know precisely how much mortgage you can carry because the lender will take into account your debt payments, income and credit score. Once you have this number, you’ll add the amount you have available for a down payment to come up with the approximate purchase price. (Don’t forget to set aside the few months of cash reserves the lender will require.)