The prospect of buying your first home is exciting, but the details can quickly get you back to earth. Sure, a lender may be willing to lend you a certain amount, but that doesn't mean you should borrow the total. Your regular monthly bills, your savings plan, your family expenses, and the unexpected expenses that can pop up occasionally - you have to think about these too. Here's where knowing about mortgage affordability can make a difference. Before you settle in on a first time home buyer program in Colorado, take a minute and learn about your financial situation - it takes more than just getting approved for a mortgage to be comfortable making your payments for the next 15 or 30 years.

Calculate Your Monthly Income Before Setting a Budget

Don't start comparison shopping homes until you understand the amount of income you actually have to work with. Not just your salary, but take-home pay as well. Taxes, insurance costs, and retirement contributions will have a significant impact. For those who work on a commission, receive bonuses, or freelance, be sure to account for some variability and don't forget to use a realistic average. Couples shopping together should figure this amount on both their respective salaries, but remember to check with one another that maybe one of you is going to take time out of the workforce, or change jobs in the coming year. The bottom line is that a mortgage should comfortably, consistently – not during the honeymoon phase – work within your normal budget.

Find Out Exactly What is Included in Your Mortgage Payment

But even those numbers don't give you the whole picture. Property taxes, homeowner's insurance, and even any required mortgage insurance can add a hefty sum to your monthly mortgage payments. If the property is in a homeowners association, tack on those fees, too. Some properties require more upkeep and care than others. An older home might seem like a steal, but a shoddy roof, deteriorating pipes, or no reliable heating system can turn that beautiful mortgage payment calculator estimate into a much less attractive number. Make sure you're comparing apples to apples. Get estimates for the full monthly housing payment before you buy.

Review Your Current Debt and Expenses

Your mortgage isn't alone in the world. Payments on cars, student debt, credit cards, and personal loans all impact your cash flow. Lenders typically look at your debt-to-income ratio, which is the ratio of your total monthly debt payments to your gross monthly income. The lower your debt-to-income ratio, the easier it'll be to qualify (although each lender and each loan program will set its own standard). For budgeting purposes, don't get stuck on whatever ratio a lender deems good enough. Think about your lived experience. Do you pay for childcare? Are you paying support or otherwise supporting family? Do you have to travel a lot for work? Are you paying for medical expenses on a regular basis? You might not be able to factor all of that into the calculation, but you still need to pay for it. Be realistic. Don't run your budget ragged just to qualify for a mortgage.

Save for the Down Payment and Closing Costs

A down payment is often the first major savings goal for a new homebuyer, but it's hardly the last. Closing costs can include fees paid to lenders, appraisers, title and closing services, as well as prepaid taxes and insurance. The figure will vary by transaction, type of loan, and location. Then you've got moving costs, furniture, utility deposits, and those little repairs that seem to pop up around the house once you get the keys. Many first-time buyers fail to realize how easily it all adds up, with much of the attention on the sale price. Some buyers can qualify for down payment assistance or other first-time buyer programs in Colorado. It pays to review the current income limits, property eligibility, lender requirements, and program guidelines before that help is counted on. Assistance can be helpful, but it shouldn't be assumed as guaranteed funds until you're certain you qualify.

Check Your Credit Report and Look at Loan Alternatives

Learn what your credit history means for your mortgage rate and terms. Get copies of your credit reports before you apply to check for errors, pay bills on time, and bring high balances down on credit cards. Don't open several new accounts just before applying unless you have a specific reason; even a modest change could complicate underwriting. Then shop around. Conventional loans, FHA loans, VA loans (if you qualify), and other programs vary in how they qualify borrowers and what they cost. Down payments could get you into a new home faster, but they also could trigger mortgage insurance or lead to a more expensive overall loan. "Look beyond the 5.25 percent interest rate." Search for the actual annual percentage rate, fees, length of the loan, how much you ultimately will pay, and so on. Do a little homework now.

Leave Room for Emergencies and Future Expenses

Be honest, life doesn't budget well. You end up in a car accident, cut your hours at work, or your water heater seizes up a week after you budget all your money! That's why you should factor in an emergency reserve fund to your affordability calculations, even if that leaves you slightly outside your target range. You should have enough liquid savings on hand to cover several months' worth of essential expenses, given your own situation. Don't forget to account for expenses that are likely to go up. Property taxes, insurance premiums, and utility bills will all go up over time, so plan for it. If you're planning to have children, change careers, or get all of your income from one person in the house, think about how the payments will change. It may be worth buying a house that's slightly less expensive, so you have more flexibility and have enough savings to cover surprises.

Get Preapproved and Explore Your Financing Options

Once you know your budget, mortgage preapproval is a good way to learn how much lenders may be willing to lend. To determine your price range, they will look at your income, debts, assets, credit history, and other financial information. Be aware that preapproval is not a sure thing, and it doesn't tell you the most you should spend. Use preapproval as a jumping-off point by comparing offers from multiple lenders. Don't forget to ask about potential fees, and request estimates for the same loan amount and length so you can better compare the numbers. Buyers considering mortgage companies in Colorado should look at their communication style, loan options, time to close, and the clarity of their estimates–not just the interest rate. If the loan officer can't clearly explain the costs in everyday language, keep asking. You should know what you're getting into before you sign on the dotted line. There's no need to get roped into a loan just because someone says you qualify.

Summary: Decide on a Payment You Can Accept

Mortgage affordability isn't just about being able to qualify for a mortgage. You'll also want to know your income and outstanding debt, the total upfront costs and ongoing housing costs, and how much you'll still need to save up once you move in. Do the numbers carefully, see if you're eligible for any aid, and look at financing options.