A person can use an online calculator designed to tell how much of a house would be affordable, or a person can use the relative rule that a person can afford a house whose total debt payments will not be more than 36 percent of the person's total gross income. This relative rule is used because banks will typically not offer home loans that violate this principle, though there can be the occasional exception.
When looking at purchasing a home, a person should remember to include existing monthly debts, such as student loans, car payments, credit cards and insurance quotas. It is crucial that the person or couple be careful not to stretch the budget in order to get a home, because a lost job or sudden severe illness could make holding onto the home impossible.
If a person or couple has savings goals, such as college, retirement or grandchildren, or expenses such as alimony payments, health care expenses or private school tuition, then the maximum home cost should be lowered.
Most mortgage payments are set at 15 or 30 years, and must include property tax and homeowner's insurance. There are also additional costs for private mortgage insurance, which can be necessary if the homeowner does not have a down payment of 20 percent or more of the home's cost.