One of the most important items to decide BEFORE you go looking for a new house is how much you can afford to pay for it. Sadly, most borrowers have no clue how much they can afford to pay for a house and end up wasting their time looking at homes that they discover, once they apply for a mortgage, are way out of their price range.

It is important to realize what lenders will use to decide what you can afford, such as your total income, how much you are putting down, what the closing costs will be, etc. What your expenses are and will be is another important component in this determination since the lender will want to make sure you can cover the mortgage after these other expenses.

Most lenders will have a ratio that takes into account income, current debt and financial commitments, interest rate and closing costs to figure how much a borrower can manage.

You can estimate these factors to within some degree of accuracy, or you can contact a professional mortgage expert who can assist you with these calculations.

One of the largest stumbling blocks to home ownership is the down payment. People don?t routinely save as much as they used to, so often they will not have any sizable balances in savings accounts. No down payment loans are rarely granted these days, since they were such a big reason for the mortgage problems over the last couple of years.

Usually, you won?t be able to close on a mortgage without at least a 10% deposit. So, if you are shopping in the $200,000 price area, you have to have $20,000 on hand, plus a reasonable amount for closing costs. A lender can give you a good faith estimate of your closing costs.

A very low estimate of closing costs would be $5,000, making a total of $25,000. The next step is to find out what your mortgage payments will be. There are sites on the internet that can assist you to figure how much you can afford to pay once you enter all income and debt, or just speak to your loan professional.

Typically, the standard used is that your home costs should not be more than 25% of your income. But this does not reflect extraneous credit card debt. They have to make sure you have enough money to pay their loan after you have paid for your food, utilities, education and other such expenses. If you are spending a lot on credit card debt, your income will be reduced, because you will have less funds to devote to the loan.

If you net $6,000 per month, you can afford a mortgage payment of about $1,500 (25%), barring any other large, standing expenses. Now you have some figures in hand to begin looking for a home.

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