First Things First
Most of us are tempted to start searching for a new home before we have established a budget. This is a mistake. The best house-hunting strategies start with careful planning. So, long before you start pouring over online listings and driving the neighborhoods, talk with your lender to establish how much house you can afford.

Qualifying
Although there are a number of loan types available (fixed, adjustable, interest only, etc.), you still need to work toward finding a monthly payment that works for you. As a general rule, expect your monthly mortgage to be no more than 25 to 36 percent of your gross monthly income. Remember that your monthly mortgage payment will include principal and interest on the loan as well as property taxes and insurance or PITI (principal, interest, taxes and insurance). And, depending on which home you buy and where, your monthly cost could also include homeowner association dues and/or Private Mortgage Insurance (PMI).

To get a rough estimate of how much you'll qualify for, do what the lenders do – plug your budget numbers into a basic mortgage calculation formula.

Lender Formulas or Qualifying Ratios
Lenders typically use one of two formulas, although most will require you meet both sets of guidelines. The first compares income-to-housing costs (without including long-term debts), while the second includes all debts.

28 Percent Formula
Total monthly housing costs (PITI) = 28 percent (or less) of gross monthly income.

36 Percent Formula
PITI + all monthly debts = 36 percent (or less) of gross monthly income.

So, if you're a family with monthly gross income (before taxes) of $10,000, you would multiply $10,000 by 28 and 36 percent. The results indicate you might qualify for a home with monthly mortgage payments between $2,800 and $3,600. Note, this is a simplistic formula and does not take into account many other factors including your credit score, cash available for down payment, etc.

Loan Application Process
The following is a step-by-step outline of what to expect during the loan application process:

• Application
  • Bring all documentation required by your lender
  • Good faith estimate of closing costs
  • Truth-in-Lending statement
    
    
• Processing
  • Verification of employment
  • Verification of deposits
  • Credit report
  • Credit score
     
• Underwriting
  • Clear conditions
    
    
• Purchase Homeowner’s Insurance
  • Insurance agent will order a C.L.U.E. report, from either ChoiceTrust or C.L.U.E. Express
    
    
• Escrow
  • Determine funds needed for closing
  • Schedule appointment for closing
  • Prepare note and deed of trust
  • Closing and title transfer

Application Checklist
Your lender will require some or all of the following items in order to process your loan application.

• Signed copy of purchase agreement
• Copy of driver’s license
• Residence addresses for past 2 years
• W-2 statements or 1099’s for past 2 years
• Names, addresses and phone numbers of employers for past 2 years
• Bank statements, brokerage statements, 401Ks, etc. for past 2 months
• U.S. tax returns and, if applicable, partnership and corporate tax returns for last 2 years
• Evidence of mortgage or, if applicable, rent payments for last 12 months along with landlord’s name, address and phone number
• If applicable, copy of bankruptcy petition or bankruptcy discharge papers
• If applicable, copy of divorce decree or separation agreement and letter stating amount of any alimony/child support payments made or received
• Application fee