The first step in figuring out which home you can afford is to talk with a home loan officer so that you can get pre-qualified for a loan.  There is no reason to make plans for a house that you love but cannot afford.  Getting pre-qualified allows you to know how much a lender is willing to offer you.  The pre-qualification is not a guarantee that you will get that amount, but it will give you the best estimate of what you can afford.  When it gets closer to the time you need t buy, you will get pre-approved for a loan.  The pre-approval process is much more involved than the pre-qualification process because your lender will need pay stubs, tax forms, credit history, bank statements, and other financial documents.

When putting in an offer to buy a house, many sellers ask for a pre-qualification letter before they even negotiate a price.  So, getting pre-qualified is a powerful tool for home buyers.  This letter shows that you are a serious and able buyer.

Typically lenders are only concerned about your ability to pay.  As a result, lenders want to know not only your income, but also debts or other financial obligations you may have.  Lenders may look more favorably on you if you can make a down payment.  Some down payment options include paying 5%, 10%, and 15% of the purchase price of the home.  As a general rule, buyers can expect to get pre-qualified for 2.5 to 3 times the amount of their gross annual income if they have little to no prior debt.  Using this rule, your monthly home Mortgage payment should not be more than 30% of your gross monthly income.