Are you wondering how much house can you afford? Knowing you want to buy a home is one thing; knowing how much of a mortgage payment you can handle is another. Too often, what buyers want and what they can afford don't match up.  Let us help you determine how much your wallet can handle.

 Calculate your annual income

To determine your annual income, take a look at how much you earn each year before taxes. Be sure to include your salary, wages, tips, commissions, etc. If you plan for your spouse or partner to contribute to the mortgage, be sure to include the gross annual income for your household. Once you have your annual income figure, you can divide that by 12 to determine your monthly income.

 Create a list of monthly expenses

To calculate how much of your monthly income you have to put towards your mortgage each month, you must first total your monthly expenses. Monthly expenses include student loans, car loans, credit card debt payments, alimony, child support, etc. This number is important to figure out your debt-to-income ratio (DTI). Lenders use the DTI ratio to gauge a borrower’s financial responsibility. To determine your DTI, take your monthly expenses total and divide it by your total monthly income. As a general rule, to qualify for a mortgage, your DTI ratio cannot exceed 36%.

 Figure out how much you can put down

When buying a home, it is recommended that 20% of the home's purchase price is put down as a down payment. This percentage can be lower depending on your mortgage loan. If you have served in the military, it could even be as low as 0%. Your down payment helps determine your monthly payment. The more you can put down upfront, the lower your monthly mortgage payment will be.

Once you have determined your annual income, monthly debt, and how much you have for a down payment, you can use realtor.com®'s Home Affordability Calculator to help you figure out a home price you can afford.