10 biggest mortgage mistakes

Letting the bank tell you what you can afford

Your lender is not a good judge of how much house you can afford. Banks are in the business of maximizing their earnings, not making sure you don't overextend yourself.

If you rely on a bank to set your price range, you will most likely find yourself in over your head, says Jamie Pandolfo, senior mortgage consultant with Flat Branch Home Loans in St. Louis.

Banks will qualify you based on your gross (pretax) income. They don't account for monthly expenses such as insurance, utilities and child care when determining your maximum approval amount, she says.

"It’s best to start by creating a budget and determining a comfortable monthly payment," Pandolfo says.

Generally, you should not spend more than 28% of your pretax income on principal, interest, taxes and insurance.

Lenders usually assume you can spend as much as 36% to 45% of your pretax income on all debts, including your house, student loans, credit cards and car loans, but you should stick to the low end of that range.

Think about the long run when setting your budget, and set yourself up to be comfortable even if you change jobs, have kids or experience another significant change.