When you’re buying a home, it is helpful to determine the type of home you'll like and how much you can afford before beginning your search. Most lenders allocate approximately 35% of your gross monthly income to housing expense. Housing expense includes principal, interest, taxes and insurance (PITI). To get an idea of how much you can afford to pay each month for a home, multiply your gross monthly income by 35%.

When coupled with current outstanding loans, the total for your debt service should not exceed 42% of your gross monthly income. Some lenders may have slightly more liberal requirements or loan interest rates which may increase your purchasing power.