1. Have you factored in all the costs of home ownership?

It shouldn’t come as a surprise that buying a home costs a lot more than your monthly mortgage payment. While most people tend to fixate on the sticker price, there are a number of expenses that need to be taken into consideration when figuring out how much house can you afford.

Before you’re even handed the keys to your new home, you’ll likely have closing costs. And if you don’t put 20 percent toward a down payment, expect to pay Private Mortgage Insurance, or PMI for short. Then there’s home insurance, HOA/condo fees, utility payments, taxes, and hidden costs, like repairs and yard work. All of these expenses can add up quickly, but if you estimate these costs before you sign on the dotted line, you’ll have a much clearer sense of how much house you can actually afford.

2. Is Your Credit Score Up to Par?

Have you ever wondered, how do mortgage lenders decide if you’re creditworthy? Lenders look at your credit history and credit score when determining the interest rate you’ll receive on your mortgage. A lower credit score may mean a higher interest rate, and a higher interest rate may mean that you can’t afford as much house. Diligently paying your bills on time, keeping your debt-utilization ratio low, or eliminating consumer debt altogether, will pay off when it’s time to determine what you can afford.

A mere 0.25 percent of a fixed interest rate on your home translates to hundreds of dollars in a year and thousands of dollars over the life of the loan. So by making sure your credit history is clean and your credit score is high, you’ll be in the best position to buy a home with the lowest interest rate possible.

3. How much should (not can) you spend

Some lenders may approve you to buy a home that seems beyond your wildest dreams. While this may be enticing, you should keep in mind that your ultimate goal should be to answer the question, “How much should I spend on a house?” rather than, “How much house can I afford?”

Some financial specialists, such as those at the Wall Street Journal, recommend that no more than 28 percent of your gross income is allocated toward your mortgage. For example, if you earn $60,000 at your job before taxes, you should buy a home with a mortgage of no more than $1,400 per month. There are handy online calculators and tools that can assist you in determining how much house you can afford when applying the 28 percent rule.

For many, the purchase of a home embodies the essence of the American dream. That dream is realized by thousands of Americans each year. If you’re considering joining the ranks of homeowners, it’s important to focus on buying a house you can truly afford. By answering these questions and utilizing tools available online, or even a financial advisor, you’ll not only be a proud homeowner in no time, but you’ll also be living within your means.