Buying a new house is by far one of the most exciting experiences that a person or couple can go through. Nothing can beat the proud feeling of home ownership and the freedom it brings. But all that excitement is often coupled with a little anxiety in the beginning as most people want to buy a new house but do not know how much they can afford or how expensive of a home they can buy.

How Your Loan Amount Is Determined

In order to protect their investment in you most large wholesale mortgage lenders have put guidelines in place to make sure that you do not borrow more then you can pay back. The major factor in determining this amount is your debt to income ratio or DTI as it is commonly referred to. As a rule of thumb most lenders will want to see your debt to income ratios around 45%. Some will let 50% or slightly higher be approved but generally the lower the better for both you and the lender.

Your debt to income ratio is determined by taking your gross (pre tax) monthly income and dividing your monthly expense by that amount. So for example if you make $5000 a month and your bills are $2000 a month your DTI is 40% thatis figured by taking $2000/$5000=.4 or 40%.

Debt to income ratios only take into account any revolving accounts like credit cards, car loans, mortgage payments, property taxes and other similar payments. They do not take into account buying gasoline, cell phone or utility bills so always make sure to keep your DTI at a lower level so you leave yourself with enough money to live on.

Although the best way to find out how much of a house payment you can afford to pay every month is to visit a reputable mortgage broker and get pre approved for your loan to by your new home.