Before looking for a home to purchase, decide on an upper limit for the purchase price. There are no definitive guidelines. An often-cited rule of thumb indicates that your mortgage payment, insurance, and property axes should not exceed 28% of your gross income. Yet in recent years, lenders have become more lenient with their criteria for issuing mortgages, so don't count on your lender to set the limit for you.
If you pay too large a percentage of your income for a mortgage, you may have difficulty making the payment in the event you encounter a problem, such as a short-term job loss or disability. You may also have trouble finding additional funds to put toward other goals, such as a child's college education or your own retirement. Thus, instead of letting your lender tell you how much house you can afford, you should decide how much of your monthly income you're comfortable committing to a mortgage payment. Based on current mortgage interest rates, the amount you're using for a down payment, and how long you want to finance the mortgage, you'll then be able to calculate the maximum amount you should pay for a home.