If you want to purchase a new home, chances are you will need a mortgage. But, before you begin shopping, you need to determine exactly how much house you can afford. Nothing is worse than being turned down for a loan after you have found what you consider to be the perfect home.

Debt-to-Income Ratio

To determine the maximum mortgage amount that you can afford, most lenders use debt-to-income ratio guidelines. The term debt-to-income ratio is used to describe the percentage of your monthly income (before taxes) that is used to pay your monthly debts. In general, the common guideline for this ratio states that monthly mortgage costs should not account for more than 33% of your monthly income. And, when your other debts (credit cards, installment loans, etc) are added to the monthly mortgage payment, it should not consume more than 38% of your income altogether. For example, if your monthly income is $3,000, your maximum mortgage costs should be $990. When your consumer debt is added in, your monthly mortgage payment and your other credit expenditures should not exceed $1140 per month.

Making Your Own Calculations

Before consulting with a lender, you can make your own calculations. Begin by determining your monthly income. Only count income that can be documented by paperwork. The easiest way to do this is to locate your W-2s forms from the last two years. Add the amounts on the two forms together and divide by 24. This is your monthly income. Once you have that number, multiply it by 0.38. This is the maximum amount you can spend on mortgage payments and consumer debt combined.

Mortgage Calculators

To help you determine how much mortgage you can afford, you may also want to use a mortgage calculator. These calculators are readily available online and can help you evaluate different mortgage options. Here is a list of recommended Home Mortgage Lenders online. It's important to use a reputable lender online to make sure your personal information is secure.