When it comes to buying your first home, or a new home, the most frequently asked question is: How much can I afford? This is a good question to be thinking about, because your monthly mortgage and what you’ll be able to borrow is all depending on a multitude of factors. Those factors include your total down payment, annual income for the household, and your hopeful monthly payment. However, you shouldn’t let these facts scare you. You just need to be aware, so you can have all the information you need together, before starting this process.

The first documents you’re going to want to go through, is determining your annual income. This can be a little taxing, because there are so many items that need to be accounted for. You need to look at everything from your total income before taxes, this does not just mean your work income. They want to know everything that is being brought in. These can include, but are not limited to salary, commission, bonuses, tips, investments, alimony or child support. There is a list of other possibilities, but these are the most common. All these need to be added for everyone that is going to be on the forms.

The down payment is where people sometimes take a misstep. It’s wise to get together as much of a down payment as possible, because it will help with your mortgage rate later on. However, you don’t want to leave yourself in a dangerous position. This basically means, make sure you keep enough to the side to cover an unforeseen cost that could arise after the purchase of the home. Always better to be safe than sorry.

Now you can look at your monthly debt, for everyone needs to know how much is going out. This means your credit cards, car payments, student loans, ect. Again, you probably know this all yourselves, but you need to have it documented to help the process move forward. The next major step you and your lender will have to look at now is your debt to income, or DTI. This is what in the end tells you exactly how much house you can afford. On average for a conventional loan, the DTI is 36%. This basically means that you will be looking for a home where your monthly mortgage payments won’t exceed 36% of your monthly income.

Purchasing a home shouldn’t be a scary process. You should be able to enjoy trying to find the place you and your family will be moving into. So please, take this information you have learned, and start your journey to that next milestone in your life.