The most important rule for home buying is understanding
"How much home you can really afford?"

A real estate agent can usually give you a ballpark estimate of the amount of a loan you are most likely to secure. A lender may also "pre-qualify" you with a similar estimate. Pre-qualifying however, is no guarantee you will be able to obtain a loan. An appointment with a lender can get you pre-approved for the maximum amount of mortgage you can secure. The procedure includes running a credit check and verifying your income and expenses. Your lender may then provide you with a certificate of approval for the amount of the loan for which you qualify.

You and your Real Estate Agent can then start hunting for your home with confidence and save a great deal of time by limiting the search for homes that meet your price range and needs. You'll also be in a much better bargaining position when it comes to negotiating the best price for the homes you choose. Pre-approval of a mortgage will also help your transaction move forward to a quicker closing. I have a wide variety of resources that will help guide you through the process

Pre-Qualified versus Pre-Approved- ( A more detailed description )
One of the best ways to determine your budget is to have your real estate agent or lender pre-qualify you for a loan. Pre-qualification is different from pre-approval, because it is only an estimate of what you'll be able to afford. Pre-approval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a specified amount.

Lenders will look at more than just your income to determine the size of the loan. Likewise, you may find that there are some creative financing options that can help boost your purchasing power. Banks and lending institutions will use several criteria to determine how much money they'll agree to lend. These include:

•	Your credit history
•	The amount of your outstanding debts
•	The amount of money you have available for a down payment and closing costs
•	Your gross monthly income
•	Your choice of mortgage (15, 30-year, FHA, VA etc.)
•	Current interest rates

Lenders also use your financial information to figure out two, very important ratios: the debt-to-income ratio and the housing expense ratio.

Debt-to-Income Ratio
Many lenders use a rule of thumb that the amount of debt you are paying each month (car payment, student loan, credit card, etc,) shouldn't exceed more than 36 percent of your gross monthly income. FHA loans are slightly more lenient.

Housing Expense Ratio
Generally it is difficult to obtain a loan if the mortgage payment will be more than 33 percent of your gross monthly income.

If you can make a large down payment, lenders may be more lenient with their qualifying ratios. For example, a person with a 20 percent down payment may be qualified with the 33 percent housing expense ratio, while someone with a 5 percent down payment is held to the stricter 28 percent ratio.

Other ways to improve your purchasing power include the following:

Negotiating Closing Costs
Through negotiation, some sellers may agree to pay all or most of your closing costs (for example, if you agree to meet their full asking price). If you choose to try this, make sure to ask your real estate agent for advice.

Loan Programs
Many local governments have special loan programs designed to help first-time homebuyers. Loans may be available at reduced interest rates, or with little or no down payments. Check with your local housing authority for more information.

Loan Types
Some homebuyers choose Adjustable Rate Mortgages (ARMs) because of low initial interest rates. Others opt for 30-year loans because they have lower monthly payments than 15-year loans. There are significant differences between different loans, so make sure to discuss the pros and cons of different loans with your agent or lender before making a decision.

Gifts
If you're having trouble saving money, many lenders will allow you to use gift funds for the down payment and closing costs. However, most lenders require a "gift letter" stating the gift doesn't have to be repaid, and will also require you to pay at least a portion of the down payment with your own cash.