One of your most important purchases

Whether you are a first-time homebuyer or a seasoned veteran, a house will probably be one of the most important, not to mention expensive, purchases you will make in your life.

How much house can you afford?

If you are mortgage bound, the bank will solve this dilemma for you in great part. No longer are lenders approving people for houses they can't truly afford. But however you choose to finance the purchase of your home, the traditional conservative figure is to buy a house that costs you no more than 28% of your monthly income. For those of you who like a more aggressive figure with increased risk, 33% is the number for you. Some government-sponsored programs let you apply an even larger percentage of your income toward a mortgage.

Debt to income ratio

Ultimately, if you are getting a mortgage, the bank will decide on a percentage based on your income to debt ratio. The most popular figure is 36%. That means 36% of your monthly income can go toward mortgage and debt expenses. So it stands to reason the more debt you have, the smaller the loan you will be approved for. Monthly debt expenses can be credit card balances, child support, car loans, student loans, and so on.

Other factors to keep in mind

Don't forget banks also take into account future homeowner's insurance premiums and property taxes, which will need to be paid, when approving you for a loan. Keep in mind, too, your total monthly expenses for clothes, food, entertainment, utilities.

What else?

Besides income, there are a few other factors that will help increase the percentage you can borrow. The savings you have in the bank will influence this number, as will your down payment. Grow your down payment with the help of our Goals feature.