If you're considering buying a home, you need to move fast . Today's real estate market is hot, and housing inventory is low. Keep reading to find out how much house you can afford. 

When you buy a house, how much home you can afford will be one of the most important factors in finding your dream place. But how can you find out how much a house is affordable? There are several different factors that affect affordability. In this article, we're taking a look at ways you can determine the optimal home price for your budget.

What Factors Help Determine Your House Budget?

There are several key factors you need to consider when determining your home budget, including:

• Income – Your income helps provide a baseline for the amount you can afford to pay each month. This includes any money that you receive on a regular basis, for example, a salary, investments, or alimony. 
• Available Cash – This is the amount of liquid funds you have available to cover your down payment and closing costs. Available cash can come from a number of sources, including savings and investments.
• Debt and expenses – Your outstanding debts and monthly expenses, such as credit cards, loans, car payments, groceries, utility bills, and insurance, should be considered.
• Credit Score – Your credit score and credit history will heavily influence your ability to secure a home loan.  

What Is Your Debt-to-Income Ratio?

The debt-to-income ratio compares your total monthly debts (including things such as your mortgage payments, insurance, and property tax dues) to your monthly gross monthly income.

If you have a higher credit score, you may be eligible for a higher ratio, but in general, your monthly expenses shouldn't exceed 28% of your monthly income.

For instance, if your potential monthly mortgage payment is $1500 a month (including taxes and insurance), and you have a monthly income of $5000 before taxes, your DTI ratio is 30%. 

To find out what your housing budget is, simply reverse the process by multiplying your income by 0.28. For example, if your income is $4000 per month, this would allow for an approximate mortgage payment of $1,120 to achieve a DTI ratio of 28% DTI.

What House Can I Afford With An FHA loan?

An FHA loan is a government-backed loan guaranteed by the Federal Housing Agency. FHA loans are a good option for people with lower credit scores or those with a small down payment. With an FHA loan, you qualify with a down payment of as little as 3.5%  

However, it's important to note that an FHA loan requires an upfront mortgage insurance payment of 1.75% of the loan amount and an annual mortgage insurance premium of anywhere from 0.45 percent to 1.05 percent. This means that one a home worth $250,000, you would need to pay a minimum downpayment of $8750, plus an upfront mortgage insurance payment of $4221.

How much house can I afford with a VA loan?

If you're a veteran, you may qualify for a VA loan. A VA loan is a mortgage-backed by the Department of Veterans Affairs. VA loans are especially beneficial as they do not require a downpayment, don't require monthly mortgage insurance, and have lower interest rates than many other loan types. 

To receive a VA loan, you must acquire a Certificate of Eligibility (COE). A COE shows potential mortgage lenders you approach that you're eligible to apply for a VA home loan. You must meet one of the following to be eligible to receive a COE:

• Served 181 days of active service during peacetime.
• Served 90 consecutive days of active service during wartime.
• Served over six years of service with the National Guard or Reserves or, alternatively, served 90 days under Title 32 (with at least 30 of those being consecutive).

Unlike other federally backed mortgages, VA loans do not have a limit on how much you can borrow. 

Find Out How Much You Can Borrow 

Getting a pre-approval letter from your lender is the best way to determine how much home you can afford. This easy and free process determines a preliminary mortgage amount available for your purchase and includes a rate quote for that loan amount. This step is critical in determining your potential loan costs and your budget. In addition, a pre-approval letter can also help your realtor find a home comfortably within your budget.

To get a pre-approval letter, you simply have to reach out to your lender and provide them with some basic details, such as your annual income and social security number. Your lender will run some checks and determine how much they are willing to let you borrow tentatively. It's important to note that a pre-approval letter is not a guarantee of a loan. 

If you're considering buying a house, start your search online today and find out how much house you can afford.