Few things are more frustrating than falling in love with a home only to discover that it's not in your price range.  But, how do you know what you can afford? By knowing how much money you can qualify to borrow.

Before investing in a home, get your financial house in order. To get the highest return on your investment and to maximize your chance to qualify for the best rate possible, you’ll want to postpone large purchases, conserve your cash and pay down your existing debt – especially credit cards and other unsecured debts.

The 28/36 Guideline

One common guideline is that your mortgage payments should amount to no more than 28 percent of your monthly gross income (income before taxes, Social Security and other deductions). Your mortgage payment has four components: principal, interest, property taxes and insurance -- commonly referred to as PITI.

Check Your Credit - by getting a copy of your credit report. Your credit report determines your credit score, which is needed for qualifying for a home loan. Order your credit report from the three major credit bureaus, check them carefully for discrepancies and errors, and have each bureau clear any errors from your report.

Down Payment - Ideally, you’d like to have enough money for a down payment of 20%. If you put down less than 20%, you’ll most likely be required to purchase Private Mortgage Insurance (PMI), which protects the lender should you default on your loan. If you are required to obtain PMI, it will be an expense added to your monthly mortgage payment.

Know your assets - It’s the first step in coming up with the amount of money you need to secure your interest in the home and the loan you want.

When calculating your assets , be sure to include ALL of the following sources:

• All checking and savings accounts
  
• Stock, bonds, stock options, 401K value
  
• 401K loan
  
• Gifts from family

What if it doesn’t add up to the right amount? Don’t give up hope. OECU offers a variety of mortgage programs, including loans that require less money down. 

Up-Front Points and Closing Costs - Points and closing costs are up-front expenses that you will need to pay before you close on a home.  In general, closing costs range from 2% to 5% of a home’s purchase price. OECU will give you an itemization of these fees.  Some of the sources of the costs involved in closing costs include:   

• Lender’s appraisal, processing, funding and document preparation fees.
  
• Title insurance
  
• Title closing company fee
  
• Real estate transfer tax
  
• Attorney’s fees
  
• County recording fees
  
• Other potential closing costs include initial escrow amounts for real estate taxes and insurance and mortgage interest from the day of closing to the end of the month in which you close.

Other Costs - Besides down payment and closing costs, there are other up-front costs that add up -- everything from mover's fees to telephone hookup charges.