It is the perennial question for every first-time homeowner. How much house can I afford? As with so many life-changing decisions, there is no one right answer to this common query, and the size of the home you buy, and the mortgage you take out, will depend on several critical factors.

If you want to know how much home you can afford, you need to ask yourself the right questions. Even more importantly, you need to provide yourself with honest answers to those queries. Here are some things you should be asking as you get ready for the transition from renter to first-time home buyer. 

•What is my current income?

Is that income secure, or is my job in jeopardy? Your ability to pay the mortgage will depend on visibility of income, making the answer to this question extremely critical. 

•How much disposable income do I currently have?

How much of that disposable income can I devote to the costs of home ownership? Owning a home is more than paying the mortgage, and you will need to set money aside for repairs, upkeep, and other essentials. 

•Do I have money for a down payment?

The more you can put down, the smaller your monthly mortgage payment will be. Even if you can do it, financing 100% of the purchase price could make your mortgage payment unaffordable. 

•How much do I want to devote to savings, investments and other essentials?

Putting all your money into the roof over your head could leave you dangerously undiversified and put your financial future at risk. 

•What is my credit score?

What steps can I take to raise it quickly? A low credit score can mean a higher interest rate on your mortgage or even an outright denial. If your credit score is less than optimal, paying down debt and taking other steps to raise it will be to your advantage. 

•What other debts do I have?

Taking on a big mortgage payment when you have other debts can be risky, so take a hard look at your monthly expenses and your balance sheet. It may be worth putting off the home purchase until you have paid your other debts. 

•Am I willing to shop for a lower priced home if it means a more affordable mortgage payment?

You may need to give up some wants or consider a different neighborhood to find a home you can more easily afford. 

Shopping for your first home can be an intimidating process, but knowing how much home you can afford will make that process easier and less stressful. The real estate agent and mortgage broker will have their opinions about home affordability and optimal mortgage payments, but in the end, your considered opinion is what counts.

After sending the offer to purchase to the seller, there's nothing left to do but cross some fingers and hope for the best. Or is there? What happens now and when will the keys finally change hands? The time between the now and the closing date is probably one of the most stressful and critical periods in the buying process. After all, there are a lot of things happening at once. At the end of it all, a seller can accept the offer, reject it, ignore it, or send a counter-offer.

Acceptance of the Offer to Purchase

An offer to purchase will have a clearly stated consideration window. This means the seller has until the deadline to consider the buyer's proposal. Most buyers hope it's accepted right away, but that isn't always a good thing. Either party can make amendments to the document if the seller and buyer both agree to them. However, immediate acceptance can also indicate that the buyer made a mistake. Was the bid too low? Were the offer's conditions too generous? Did the seller price the property too low? It's worth considering.

When Sellers Ignore or Reject an Offer to Purchase

A seller might ignore the offer or reject it. This can happen if the seller receives several offers. He or she will focus on the ones that appear to be the most promising and ignore the rest. Alternatively, the seller might simply ask each buyer to submit their best offer, choose one, and close the deal. Immediate rejection could indicate that the bid price was too low, or the conditions were too aggressive. Either way, buyers will have the option to send another offer if they'd like to try again.

Counter-Offers and Negotiating an Offer

In many instances, the first offer to purchase acts as an anchor for negotiations. The seller will change the details he or she isn't happy with and return it to the buyer. The buyer can then make amendments to the offer and send it back to the seller. Sometimes, the changes are minor and easy to negotiate. Other times, things can get difficult, and the negotiations can go for weeks. The outcome depends on each party's needs and how good they are at the art of negotiations.

It would be wonderful if all offers were accepted right away and everyone could focus on moving, but that isn't always the case. Each situation is unique. Regardless of how a seller chooses to react to an offer to purchase, a knowledgeable and experienced real estate agent can help buyers proceed.

Securing pre-qualification, pre-approval, and mortgage commitment letters can simplify the mortgage application process. These steps can also help home buyers avoid disaster. They don't need all three, however.

Mortgage Pre-Qualification and Buying a House

Future home buyers can get pre-qualified for a home mortgage long before they ever start house shopping. Used mostly by buyers to gather information and ask questions, this process is quite informal. Applicants have a consultation with a mortgage lender. He or she will ask a range of questions about debt, finances, the type of home the applicant would like to have, and the requirements for various loans.

Using this information, the mortgage lender will then provide the applicant with a range of information. First, the lender will discuss any details in the applicant's financial profile that may cause issues with the approval process. He'll also discuss mortgage types, their requirements, and what borrowers need to be approved. This gives people looking to buy a home time to fix any credit problems, ensure they have the down payment, and that they make enough money. It also gives applicants an idea of what size of a mortgage they could get, and therefore, what kind of houses to look at.

Mortgage pre-qualification has no real value outside of acting as a starting point. The lender doesn't verify any financial information, run any checks, or give binding mortgage estimates. Therefore, it's unwise to use mortgage pre-qualification as a negotiation tool when buying a home. For that, consider getting pre-approved.

Mortgage Pre-Approval and Home Buying

Being pre-approved for a home loan is like the middle ground between pre-qualifying and submitting a mortgage application. During this process, the mortgage lender will review and verify an applicant's financial information to determine their creditability. This can take some time, but it costs nothing. And once someone has been pre-approved, they can demonstrate to the seller and real estate agents that they're serious about negotiations. It can also speed up the mortgage approval process, which can be a huge benefit in a hot housing market.

To be pre-approved for mortgages, applicants will need copies of their credit reports and give the lender permission to do a hard tri-merge check, which pulls reports from the three main credit bureaus. The lender will also need a few month's of bank statements and pay stubs, tax returns, any sort of asset verification, and proof of any other forms of qualifying income.

When the underwriter returns the application, they will say that it has been approved, approved with conditions, suspended, or denied. If it has been approved or denied, this part of the process is over. The borrower can move to the next step, try another lender, or fix their financial issues. If the application was suspended, it means the underwriter requires more documentation or information before making a decision. Approval with conditions means the applicant will need to satisfy some concerns or requirements before the mortgage can proceed.

At this point, borrowers should discuss locking in the interest rate and loan terms. How long the lock lasts and what it costs will depend on the lender and the mortgage. However, they will protect the buyer from rising interest rates or term changes between pre-approval and the date the mortgage closes.

Mortgage Commitment Letter

To provide a borrower with proof of approval, underwriters can complete a commitment letter. It will include the mortgage type, amounts, and other details. Real estate agents and sellers see this as proof that a buyer is serious and financially able to negotiate for a specific. The property sale can go forward as soon as the seller approves the offer. This puts the ball in the seller's court, so to speak.

Warnings about Pre-Approvals

Borrowers should get pre-approval before choosing a house to buy. Pre-approval and approval both take time. It would also be heartbreaking to fall in love with a property that falls outside the budget. Or, for someone to settle for a home that's well below their approved limit.

Mortgage commitment letters and pre-approval letters are not the same. Applicants can still be denied after receiving a pre-approval letter for a number of reasons. A recent job change, a negative item appearing on a credit report, incurring new debt, or a change in requirements on the lender's side can all cause a denial after pre-approval.

Pre-qualification, pre-approval, and commitment letters all have different procedures and purposes. It's best for anyone wanting to buy a home to understand how these three options work and which one they'll need. They should also apply early and lock in the terms and interest rate as soon as possible. Then, they just have to focus on finding the perfect house and putting in an offer.