How much can I afford?
Lenders use several different methods to calculate how much you can afford to spend on a home.
First they will want to see your monthly budget, your income, the nature and extent of your other assets and your debts, and the size of the down payment you plan to make.
Once they have all the numbers and other information, most lenders use two ratios based on your income to determine how much they are willing to lend.
The first ratio sets a limit on what they think you can spend for housing. As a rule of thumb, buyers with good credit can qualify for a home purchase price roughly 2 1⁄2 to 3 times their gross annual income.
Lenders use a second ratio to compare your monthly debt obligations and housing cost, to your income. This figure can raise or lower the amount of income a lender feels you can safely use for housing expenses.