If you are considering buying a home or condo in the state of Virginia, the first thing you need to decide is how much you can actually afford. We are talking about a home loan here – not the home itself. Before you even begin shopping for a home, you should first get a home loan. This will make the process a lot easier.

These days, Virginia lenders offer all sorts of convenient loan packages that come with a multitude of options for savvy borrowers. Be sure you are completely informed on all the implications of a particular loan package before you select the one that is right for you.

What is most important to keep in mind when shopping for a loan in the state of Virginia?

First off, you will want to employ a ratio to give you an idea of what you can afford when it comes time to buy your new house or condo. The formula is twenty five percent of your gross income (on each pay check). This is the amount that should be used for a home payment. Based on this formula, you can start looking for the right home for your personal situation. While it varies greatly, the formula gives you a rough idea of how to stay within your personal budget.

Alternately, you can multiply your gross annual income by 2.5 or 3.5 to get a calculation of your desired home loan amount.

Neither of these formulas, however, take in to account interest rates or the sort of loan you want to obtain. They do not factor in living expenses or other forms of debt, either. Lenders use these ratios against debt and monthly income as a way of determining the home loan an individual will be qualified to make. The assumption is that the individual will still have money left over at the end of a each month for their other living expenses.

For some buyers, however, these ratios exclude some important facts. Use these ratios with a clear understanding of how they are intended to function. Otherwise, you could end up making some mistakes when calculating how much is appropriate to borrow. A lot of times, people are unclear about what it means to use thirty percent of their income for a home loan payment. Is that thirty percent inclusive of interest and principal? Does it include anything else besides that? What about gross or net income – which should be used to determine the thirty percent? Sometimes, these issues are unclear for individuals interested in purchasing property in the state of Virginia.

Talk to your lender about any of these issues that do not seem readily apparent to you. These so-called “rule of thumb” ratios should only be employed by a person who knows what they are doing, which means what they can and cannot safely include. Look for financial options when you are closer on deciding what type of home you want to purchase.