Knowing what you an afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28% of their gross income per month on a mortgage payment or more than 36% on debts.
It pays to check with several lenders before you strat searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.
The price you can afford to pay for a home will depend on six factors:
- Gross income
- The amount of cash you have available for the down payment closing costs and cash reserves required by the lender.
- Your outstanding debts.
- Your credit history.
- The type of mortgage you select.
- Current interest rates.