There are many factors you need to take into consideration when purchasing a home. First and foremost, ask yourself what size monthly payment you can afford. When determining how large a mortgage you can afford, be sure to factor in all your current expenses such as car payments, credit card bills, student loans, utilities, and the like. You may also want to factor in how much you spend on things like entertainment, eating out, and traveling. You don't want to add a mortgage payment and say goodbye to your social life. Instead, you want to make sure that you're not overextending yourself financially so you can enjoy a good quality of life.
At the present time, most lenders will allow for a whopping debt-to-income ratio of 45% - 50%. Your debt-to-income ratio is the sum of your mortgage payment and any other credit card or loan payments, divided by your monthly gross income. Lenders use this ratio to help determine your credit worthiness. All of your revolving debts along with your mortgage payment divided by your monthly gross income should not exceed the 36% - 45% debt-to-income ratio. Here’s a quick formula to help you figure out how much you can afford to put toward your monthly house payment:
--Multiply your gross monthly income by 0.45
--Subtract your non-mortgage debt payments from the result