The time to determine how much you can afford to pay for your house is before you start to shop for one. This will save you umpteen hours looking at homes that you should not really be in the market for to begin with.

There are a number of items that influence how much you can spend on a house, including household income, the amount of the deposit, and the market rates and closing costs on home loans in your area. Lenders will also look at your current debt and fixed expenses, since you will have to go on paying such bills and they want to be sure you have enough income left to pay the mortgage.

Most banks 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.

It is possible to calculate these costs on a worksheet, or you can get in touch with a mortgage professional who will be happy to make the calculations for you.

One of the largest stumbling blocks to home ownership is the down payment. We are simply not in a savings oriented society and most people have a hard time gathering that elusive next egg. The days of no down payment loans are gone since the credit crisis in the home mortgage market, so most people will have to count on saving a substantial amount for their down payment.

Usually, you won?t be able to close on a home loan without at least a 10% deposit. This means that for a median priced house of $200,000, you will have to have the minimum amount of $20,000 for the deposit, and the additional funds for closing costs. A bank can supply you with a good faith estimate of your closing costs.

A very low assumption would be that you have to make $25,000 available. The next step is to learn out what your mortgage payments will be. You can visit many sites on the internet that will help you calculate what you can afford for a monthly home loan, or you can call a mortgage professional.

The traditional rule is that your home costs should not be greater than 25% of your income. Banks will examine this closely, more so if you have high credit card debt. If you are spending 25% of your income on your home, the rest is (in a perfect world) supposed to be spent on utilities, food, vacation, education and savings. If you are spending too much on credit card debt, your income will be reduced, because you will have less funds to devote to the mortgage.

If you net $6,000 per month, you can afford a mortgage payment of about $1,500 (25%), barring any other large, fixed expenses. This is at least a starting point for a shopping trip for a new home.

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