How Large a Loan Can I Get?
Start by looking at your income to get an estimate

As you contemplate applying for a home loan, you need to consider your personal finances. The amount you earn compared to the amount you owe will help a lender determine how much they will allow you to borrow.

First, figure out your gross monthly income. This includes any regular and/or recurring income that you can verify with proper documentation. Unfortunately, if you are unable to produce documentation of the income or it does not appear on your tax return, then you cannot use it to qualify for a loan.  You can, in some cases, use unearned sources of income such as spousal support or lotto winnings. And if you are the owner of assets that produce income such as rental property or stocks that pay dividends, the income from these can be estimated and used in this calculation. If you have questions about your specific situation, any reputable loan officer can review the rules.

Second, calculate your monthly debt obligations. Your monthly debt would be all your monthly debts owed, including credit cards, installment loans, car loans, personal debts, or any other ongoing monthly obligation such as spousal or child support, for example. Use your minimum payment each month to figure a revolving debt load (such as credit cards). To figure an installment loan debt load, figure in your current monthly payment. If, within 6 months, a particular debt, whether it be installment or revolving debt, will have a zero balance, then do not figure in this debt when calculating your debt load. In short, most lenders do not want you to take out a loan that will overload your ability to repay everybody you owe. Although every lender has slightly different formulas, here is a general idea of how they scrutinize the numbers.

As a rule of thumb, your housing expense per month, including paying taxes and insurance each month, should not be in excess of around 28% of your monthly before-taxes income. Most buyers do not know what their monthly taxes and insurance premiums will be at first, so it is safe to plan that about 15% of your monthly housing payment will go toward this obligation. The remaining 85% can be allotted for principal and interest repayment.

Additionally, your estimated housing expense per month, plus your total debt load per month cannot amount to over around 36% of your gross income each month. If you exceed this percentage, your mortgage application may be more than the lender's underwriting parameters and you may not get your loan approved.

Depending on your individual situation, there may be more or less flexibility in the 28 percent and 36 percent guidelines. If you were able, for instance, to purchase the home without borrowing more than 80 percent of the home's value by making a substantial down payment, the qualifying ratios become less important. Likewise, if Donald Trump or a wealthy grandmother wishes to cosign on the loan with you, most lenders will not be as concerned with the guidelines noted here.

Remember that there are hundreds of loan programs available in today's lending market and every one of them has different guidelines. Do not be discouraged, therefore, if, at first, your dream home seems unattainable.

Do not lose heart, you are in control of a number of factors that affect your monthly payment. For example, you can apply for an adjustable rate loan, which has a lower initial payment than a fixed rate program. Also, if you put down a larger down payment, it will also lower your projected monthly mortgage payment.