Buying a home is typically the largest financial commitment most people make. It can also seem like one of the most confusing and overwhelming processes you've ever navigated. A great way to begin the process is to answer the question "How much home can I afford?".

Whether you're looking to buy your first home; a new, larger home; or if you're thinking about downsizing into something smaller or less expensive, one way to determine how much mortgage you can afford is to get prequalified or preapproved by a lender. So what exactly does it mean to get prequalified or preapproved? What is the difference?

Prequalification: Getting prequalified is really just getting a ballpark estimate of how large a mortgage you qualify for. You can prequalify either online or by going through a local lender. You don't have to sign any papers or commit to taking out a mortgage with that lender. You shouldn't have to pay a fee for the prequalification and you can usually do it over the phone or online.

Preapproval is the formal process of applying for a loan. You'll have to supply more information, fill out some paperwork or online application papers, and will likely have to pay a fee (although it shouldn't be more than $50 - $100 max!). Being preapproved means that the bank guarantees to make you a mortgage loan. Being preapproved can make the home buying process easier in two ways:

1. It can make it house hunting easier. If you know how much home you can afford, you can stick to your guns about the homes you really want to see instead of feeling pressured to look at bigger homes (and larger mortgages!)

2. It can speed the process up because you already have a bank saying that they'll loan you the money for a mortgage. Both realtors and sellers like knowing that you've done some homework up front and that you have a bank committed to financing your loan if your offer is accepted.

Now it's important to realize that a lender will tell you the maximum amount that you'll qualify for. As enticing as it can be to see that large number on paper, you need to decide how much debt you really want to take on. You may want to buy a home less than what the bank says you could afford. Maybe you want to give yourself some financial flexibility to be able to quit your job and stay at home when you start a family, or to be able to take a paycut if you're thinking about going back to school or starting a career in a new field or in case you have unexpected financial challenges. If you buy a home based on your combined current incomes or even just your current income, it will be difficult to keep making that mortgage payment when your income is reduced. If you're downsizing, it's even more critical to try and stay within a price range you can afford.

Remember too that the amount quoted by the lender does not factor in how much you'll owe in property tax and homeowner's insurance. Ask your lender or Realtor to give you an estimate on tax and insurance on homes in your area. You can estimate that your property tax will be roughly between 1 and 4 percent of the mortgage amount.