Down Payment

• The lending industry believes that the more money you invest in your house, the less likely you are to walk away from the mortgage. For that reason, a 20 percent down payment is usually the minimum required to get a good interest rate. If you qualify for mortgage insurance from the Federal Housing Administration, however, you can go as low as a 3.5 percent down payment if your credit is good. On a $200,000 home, that would be $7,000.
  
  

PITI

• PITI is an acronym for your monthly housing payments. It stands for the principal and interest on the mortgage, plus the taxes and insurance on the property. Commercial lenders want your PITI no higher than 28 percent of your monthly pre-tax income; the PITI combined with other debts such as credit-card payments and car loans should be no higher than 36 percent, the Federal Reserve states. With FHA insurance, however, lenders will allow a total monthly debt as high as 41 percent.
  
  

Calculations

• It's possible to take your monthly payment and calculate your maximum mortgage but it isn't simple. The mortgage size you qualify for also depends on how many years the mortgage will run, how large the interest payments are, whether it's a fixed-rate mortgage or adjustable and other factors. Foner Books provides a formula for combining these factors to learn your mortgage size; you can also use an online calculator, such as the one on the Bankrate website.
  
  

Risks

• Just because you can afford a $250,000 mortgage doesn't mean it's a good idea to take one out. If your job or your income is uncertain, or you have to save for your children's college education, leaving yourself more financial flexibility might be smart. There's also your personal comfort zone to consider: Some people are happy buying a big house and having little discretionary income, while others prefer having more money for self-indulgence. You'll be living with your mortgage for years, so make sure it's an arrangement you're comfortable with.