Budget First, Then Buy -- GetSmart.com Helps Consumers Determine How Much Home They Can Afford

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Being prepared for a home purchase is the best favor you can do for yourself. Read more to lean how to get ready.

When it comes to buying a home, most people put the proverbial cart before the horse. Eager to see what's on the market, the first step taken by most is to check out real estate listings online and then begin visiting homes for sale. In reality, though, budgeting should be the starting point. After all, what's the point of wasting valuable time visiting homes and then end up having your heart broken because you can't afford the one you love?

So what is the best way to realistically figure out how much house you can afford? By examining your debt-to-income ratio first. This ratio, usually expressed as a percentage, is based on how much personal debt you currently have related to how much money you earn. This number is used by lenders to determine how much mortgage debt you are able to handle.

Mortgage lenders generally prefer a debt-to-income ratio of 36 percent. Borrowers who have a ratio above that are generally seen as risky, which means they are more likely to be denied or asked to pay a higher interest rate. If you calculate your debt-to-income ratio and find it higher than the prescribed 36 percent, you might consider paying down some of your debt before you start house hunting to avoid having to pay a higher rate.

In some housing markets, particularly those with higher home prices, some lenders will allow a debt-to-income ratio as high as 45 percent. Of course, that higher ratio might cost you a higher interest rate so it's best in that situation to buy "less" home. Make sure to run the numbers, understand what you can afford and embark on your house hunting expedition much more prepared.

For more information about debt-to-income ration, check out the GetSmart.com Loan Resources section on http://www.getsmart.com.

About GetSmart®
GetSmart is a leading financial services marketplace that offers borrowers access to a range of home loan products such as mortgages and refinance loans, home equity loans and lines of credit from a network of more than 250 lenders. Consumers who visit the site at http://www.getsmart.com of call 1-800-GETSMART complete a short and simple form and will then be matched with up to five competing lenders.

GetSmart is owned by LendingTree, LLC, which is an operating company of IAC.

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ALLISON VAIL
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