How much home can you afford? (2)

Let us assume that you have an annual household income, including interest and dividends, of $80,000, or $6,667 per month. Now let us suppose that you are interested in buying a home that costs $250,000. If you are able to put down 10 percent ($25,000), you will need a mortgage of $225,000. But will you be able to afford the payments? Let's do the math.

If you are approved for a 30-year fixed interest loan of $225,000 at 5.75 percent, your monthly payment, including interest, would be roughly $1,340. That is about 20 percent of your regular monthly income -- well under the 28 percent figure. If we assume your car payments and other recurring debt is around $800 per month, your total recurring monthly payments are $2,140 -- again, well under the 36 percent mark. You're in luck: you can afford the house.

There are plenty of online calculators that will help you determine how much you can afford to pay each month. But knowing ahead of time what you can afford to spend will make you a better-informed, smarter home and mortgage shopper.