A good way to determine the amount of mortgage that you will qualify for is to take your gross monthly income. Which is before taxes and other deductions. Then multiply it by .28. This is just over one quarter (1/4) of your gross monthly income.
Mortgage companies use qualifying ratios to determine how much money they will lend you. Most mortgage companies use either a 28/36 ratio or a 25/33 ratio. The first number in each pair represents the percentage of your gross income that the lender would consider as an acceptable mortgage payment. It works like this, if your gross monthly income is $2,500. Then $2,500 * .28 equals $700 per month.
The second number represents your gross monthly income and all of your incurred debt payments, not just the mortgage. If you make $2,500 per month, and also have a $225 a month car payment, $2,500 * 36% is $900, minus the $225 car payment equals $675.
The numbers in this example are nearly the same. If you have incurred more debt, you would qualify for less. This is why it is so important to pay down credit cards, and buy the new car later.
Use our Calculator to find out an approximate amount that you would be able to afford and qualify for when applying for a home mortgage.