PREPARING TO BUY
Budgets, Down Payments & Preapproval
Getting Financially Ready to Buy
The strongest buyers aren’t necessarily the ones with the most money — they’re the ones who prepared early and know exactly where they stand. Before you fall in love with a home, it pays to get clear on three things: your buying power, your down payment strategy, and your preapproval.
We’re Susan & Kurt Johnston, REALTORS® with Iron Valley Real Estate of York County. One of the most valuable things we do for our buyer clients is connect them with trusted local lenders and financial professionals before the search begins — so when the right home appears, you’re ready to move.
Step 1: Understanding Your Buying Power
Most buyers ask: “What can we afford?” But the better question is: “What is our buying power?”
Your buying power is the total amount you can comfortably put toward a home purchase — combining your monthly payment capacity, your down payment savings, and the amount you qualify to borrow.
A key rule of thumb: Your total monthly housing costs — mortgage principal + interest + property taxes + insurance, known as PITI — should generally not exceed 28% of your gross monthly income. Your total monthly debt payments including the mortgage should ideally stay under 36% of gross income.
Use this worksheet to estimate your numbers:
| Step | Calculation | Your Number |
|---|---|---|
| 1 | Monthly gross income (before taxes) | $ ________ |
| 2 | Multiply Line 1 by 0.28 — maximum monthly housing payment (PITI) | $ ________ |
| 3 | Monthly gross income again (same as Line 1) | $ ________ |
| 4 | Multiply Line 3 by 0.36 — maximum total monthly debt payments | $ ________ |
| 5 | Subtract existing monthly debts (car loans, credit cards, student loans) | − $ ________ |
| 6 | Maximum mortgage payment (Line 4 minus Line 5) | $ ________ |
| 7 | Your true maximum payment — take the lower of Line 2 and Line 6 | $ ________ |
| 8 | Multiply Line 7 by 0.80 — estimated principal & interest portion only | $ ________ |
Remember: This worksheet gives you a starting estimate. A lender preapproval will give you the concrete number. We always encourage buyers to think about the payment they’re comfortable with — not just the maximum they qualify for.
Step 2: Saving for a Down Payment
Your down payment directly affects your monthly payment, your interest rate, and whether you’ll need private mortgage insurance (PMI). Here’s what to know:
| Down Payment | PMI Required? | Impact |
|---|---|---|
| Less than 20% | Usually yes | Adds to your monthly payment until you reach 20% equity |
| 20% or more | No | Lower monthly payment; often better interest rate |
| 3.5% (FHA Loan) | Yes (for life of loan unless refinanced) | Lower barrier to entry for first-time buyers |
| 0% (VA Loan) | No | Available to qualifying veterans and active-duty military |
| 0% (USDA Loan) | No | Available in eligible rural areas of York & Lancaster Counties |
From Susan: “As a fellow veteran, I understand the VA loan benefit deeply — and I want every eligible buyer to know what they may be entitled to. If you’ve served, let’s talk about your VA loan options before we do anything else.”
Tips for First-Time Buyers
-
-
- Set a savings goal. Research average home prices in your target area — we can share current data for York and Lancaster Counties — and work backward from your target down payment percentage.
- Cut back temporarily. Review monthly subscriptions, dining out, and discretionary spending. A focused 12-month savings push can make a significant difference.
- Boost your income. A part-time job, freelance work, or selling unused items can accelerate savings. Earmark windfalls — tax refunds, bonuses — directly into your down payment fund.
- Explore first-time buyer programs. Pennsylvania’s PHFA (Pennsylvania Housing Finance Agency) offers down payment and closing cost assistance programs for qualifying buyers. We can point you in the right direction.
- Ask about gift funds. Approximately 28% of first-time buyers receive financial gifts from family or friends toward their down payment. Lenders have specific documentation rules about gift funds — your lender will guide you through this.
-
Tips for Repeat Buyers
-
-
- Tap your home equity. If you’ve built equity in your current home, a HELOC or home equity loan may fund part or all of your next down payment. Talk to your lender about timing this alongside your sale.
- Maximize your 401(k) option carefully. Some plans allow borrowing up to $50,000 (or 50% of the vested balance, whichever is less) for a home purchase. This is a loan that must be repaid and carries risks if your employment changes. Always consult your financial advisor first.
- Rent out a room. If your current home has a rentable space, channeling that income into savings is a powerful accelerator.
-
Step 3: Getting Preapproved
Getting preapproved is the single most important step you can take before seriously shopping for a home. In a competitive market like York and Lancaster Counties, a preapproval letter signals that you’re a credible buyer ready to perform. Many sellers won’t consider an offer without one.
Prequalification vs. Preapproval — What’s the Difference?
| Prequalification | Preapproval | |
|---|---|---|
| What it is | An informal estimate of what you might borrow | A verified commitment from a lender |
| Documentation required | Minimal — often just self-reported information | Full application: pay stubs, tax returns, bank statements, credit check |
| Credit check | Usually a soft pull or none | Hard credit pull required |
| Weight with sellers | Low | High — treated as near-proof of financing ability |
| Best used for | Early-stage budget planning | Active home shopping |
Our recommendation: Skip prequalification and go straight to preapproval. In today’s York and Lancaster County market, it’s the letter that truly moves the needle.
Step 4: Protecting Your Preapproval — 10 Rules
Once you’re preapproved, your loan is under lender review until the day of closing. Certain actions can jeopardize your approval. Follow these rules carefully:
| # | Rule |
|---|---|
| 1 | Do not change jobs, become self-employed, or quit your job |
| 2 | Do not buy a car, truck, or van |
| 3 | Do not use charge cards excessively or let accounts fall behind |
| 4 | Do not spend money set aside for closing costs |
| 5 | Do not omit any debts or liabilities from your loan application |
| 6 | Do not buy new furniture |
| 7 | Do not allow anyone to make new inquiries into your credit |
| 8 | Do not make large deposits without checking with your loan officer first |
| 9 | Do not change bank accounts |
| 10 | Do not co-sign a loan for anyone |
Our Trusted Partner Network
We’ve built long-standing relationships with the best mortgage lenders, financial planners, and attorneys in York and Lancaster Counties. When you work with us, you get access to professionals who treat our clients as a priority. Ask us about our Trusted Partner Program and we’ll connect you with lenders who take the time to find the right loan for your situation.
Frequently Asked Questions
How much of a down payment do I actually need?
It depends on your loan type. Conventional loans can go as low as 3% down. FHA loans start at 3.5%. VA and USDA loans may require nothing down for qualifying buyers. We’ll help you understand which loan types fit your situation and connect you with the right lender.
What credit score do I need to buy a home?
Most conventional loans prefer a score of 620 or higher; FHA loans may go lower. But credit score is just one factor — income, debt ratio, and savings all matter too. A good local lender will look at your full picture, not just a number.
How long does preapproval take?
Typically 1–3 business days once you’ve submitted all your documentation. We recommend starting this process before you seriously begin touring homes.
Can I shop multiple lenders?
Yes — and we encourage it. Multiple mortgage credit inquiries within a short window (typically 14–45 days depending on the scoring model) are often treated as a single inquiry, so comparing lenders generally won’t hurt your credit score.