How much home, and how big of a mortgage, can you afford?

Pink piggy bank with trail of coins to a house

Figuring out how much you should spend -- and borrow -- for a home is one of the first and most critical decisions every potential buyer must make.

It all depends on how much you earn and how much you owe.

Stay within the bounds of these two simple rules and you should have little or no trouble making your monthly mortgage payments. Stray outside them and you'll be scrimping and scraping to write every check:

Housing costs -- including principal, interest, taxes, assessments or any other fees -- shouldn't exceed 28% of your gross or pretax income.

Debt payments -- including mortgage, auto loans, student loans, child support and credit card bills that will take more than six months to pay off -- shouldn't exceed 36% of your pretax income.

Using those rules is easy. Just enter your income and expenses into our 28/36 mortgage calculator and we'll tell you how big a loan and monthly payment you can afford.

For the majority of buyers their debt, not their income, will be the critical factor.

Let's say you and your spouse make $50,000 a year before taxes.

That's enough to support housing costs of about $1,170 a month, including such things as property taxes and condo fees.

But you also need to hold your total debt payments under $1,500 a month. That means all of your other obligations must be less than $330 a month to afford a mortgage payment as large as you income will allow.

If your bills total more than $1,500 -- and for most people it will -- then your mortgage payment will have to be less than $1,170 to ensure you won't run out of money before all the checks are written.

That's why one of the biggest mistakes borrowers make is underestimating their debts and borrowing too much.

Loan officers and real estate agents also downplay debts when deciding how much to lend and what homes to show you. As a result, many buyers are offered more money and pricier homes than they can really afford.

Lenders know the mortgage is the first bill most of us pay each month. If you don't have enough money to pay all your bills, you're far more likely to fall behind on auto or child support payments.

Lenders also know your loan will be quickly sold to investors. If you are overextended and default it won't be their problem.

"Many people don't really understand what the numbers are saying, so they allow lenders and real estate agents to tell them what they can borrow," says Eric Tyson, co-author of "Mortgages for Dummies" and "Home Buying for Dummies."

"They leap to the conclusion that if the lender tells them they can borrow that much, they can really afford to do so. People need to take a good hard look at their current spending and budget, and examine how that is going to change with the proposed home purchase."

Once you know how much you can afford, don't let real estate agents show you homes outside your price range or get swept up in the emotional aspect of buying a house. It's not uncommon for buyers to become so fixated on a particular house that they'll spend whatever it takes to get it.

The home "becomes a status symbol," Tyson says. "They just have to live in that neighborhood because once they are there ... their lives will be perfect."

It's critical to make sure you'll have enough to live on after you make your monthly mortgage payments. You don't want to go through life "house poor" or worse.

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