Qualifying for a Mortgage
Don’t start house hunting until you seriously consider how much you can afford to pay. A little advance planning will save you time and money later, by preventing you from bidding on unattainable houses or applying for loans that are out of your comfortable price range.
How Much House Can You Afford? Many lenders have developed a formula that says you can afford a house worth about three times your total (gross) annual income. Don’t rely solely on this formula, however — it’s much safer to look at your own budget, and figure out how much you have to spare and what the monthly payments on your new house will be (not just on the mortgage — factor in taxes, insurance, maintenance, remodeling plans, and more).
According to institutional lenders, you should make all your monthly payments — toward your house as well as other debt obligations — using no more than 28% to 44% of your monthly income. In other words, if your monthly income is $2,000, the lender would want you to pay no more than $880 (.44 x $2,000) toward all your debts.