To determine how big a mortgage you can afford you should follow the parameters used by most lenders.  Usually your total debt payments should be no more than 36% of your gross income.  To determine this amount add your monthly debt (proposed home payment, credit cards, student loan and car payments) then divide that by your monthly income, The answer will indicate the largest monthly debt load that most lenders have determined you should be able to afford. 

Remember that the home payment must include 1% of payment property tax and 0.4% of payment for homeowners insurance. It does not include private mortgage insurance – which you will have to pay if your down payment is less than 20% of the purchase price.

It is also important that you remember any additional expenses, i.e. child care, private school tuition, health care etc.

Annual  Income

  $ 60.000.00

36% of Income

       1,500.00

Monthly Debt (not including proposed mortgage)

          600.00

Down Payment

    30,000.00

Qualified Monthly Mortgage Payment

  $  1,200.00