Income

• Lenders generally allow your monthly housing payments to be no more than 28 percent of your gross monthly income. The housing payment not only includes the principal and interest on your mortgage, but also your property taxes and homeowner's insurance. If you get a Federal Housing Administration loan, the housing payment can be up to 29 percent of your gross income. If your other debt payments, including car payments, student loan payments and credit card bills, add up to more than 8 percent of your gross income, this could limit your maximum affordable mortgage payment further. Lenders do not allow a mortgage that would cause your total debt payments to exceed 36 percent of your gross income, or 41 percent for FHA mortgages.
  
  

Mortgage Terms

• The terms of your mortgage will affect your monthly payment in a few ways. First, the higher your interest rate, the higher your monthly payment. Your interest rate depends largely on your credit score, with people with better credit qualifying for lower interest rates. Therefore, boosting your credit can help you get a lower rate and be able to afford a more expensive home. Another option is to get an adjustable-rate mortgage, which usually starts at a lower rate than a fixed-rate mortgage and allows you to afford a bigger mortgage. The other major factor in your mortgage terms is the length of the mortgage. The longer the mortgage, the lower your monthly payment.
  
  

Down Payment

• The amount of your down payment also affects how much you can borrow. You need a down payment of at least 3.5 percent of the purchase price for an FHA loan. Conventional mortgage lenders require a down payment of at least 5 percent of the home's purchase price. Some increase the requirement to 10 or 20 percent. If your down payment is less than 20 percent, you will need private mortgage insurance, which increases your monthly housing payment. Multiply your down payment by 20 to calculate the maximum purchase price you could afford with 5 percent down. Multiply by 10 to calculate the price with 10 percent down, multiply by 5 to calculate 20 percent down and multiply by 28.6 to calculate 3.5 percent down.
  
  

Calculate Your Capacity

• Many websites offer calculators that determine your mortgage borrowing capacity based on numbers you input. Talk with a lender about the interest rate for which you would qualify based on your credit score. Also, ask about expected costs of homeowner's insurance, private mortgage insurance and property taxes in your area. Divide your annual gross income by 12 to calculate your gross monthly income. Add up all of your other monthly debt payments to find your monthly liabilities. Plug all of these into a maximum mortgage calculator to get an estimate of how big of a mortgage you could afford. Add your down payment to find the maximum purchase price.