Many people wonder if they can really afford to fulfill their dream of owning their own home, or how much of a home they could afford. They wonder what a lender will look at in deciding how much of a mortgage they can get. If this is what you are asking, here are a few things to consider:

1. First, a lender will look at how much of your monthly income before taxes is going into paying off debts. Frequently, they will use the 33/38 ratio. This sounds confusing but let me break it up simply: 33% of your income can go into housing costs (mortgage, insurance, taxes, etc) and 38% of your income can go into your regular consumer debts (loans, credit cards, car payments,etc.) Guidelines may be flexible or vary with different types of mortgages such as FHA & VA (veterans) mortgages.

2. Lenders will only count income that can be documented on paper. This is based on your gross income before taxes. One shortcut way to calculate your monthly income is to add the last two years income on your W2's and divide by 24 (for 24 months). This should give you a fairly good idea of what your monthly income is. If you are receiving 1099 income or are self-employed, you will need tax returns from two years to document what you are earning.