A couple of points to consider when you are determining how much you can afford:
Not only does owning a home give you a haven for yourself and your family, it also makes great financial sense because of the tax benefits — which you can’t take advantage of when paying rent. The following calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too. Based on your current rent, use this calculation to figure out how much mortgage you can afford.
Multiplier: x 1.32
Mortgage payment: _________________________
(Don’t forget about Home Owners Association dues if your are buying a property that is included in one.)
Because of tax deductions, you can make a mortgage payment (including taxes and insurance) that is approximately one-third larger than your current rent payment and end up with the same amount of annual income.
Another quick rule of thumb that you can use to guestimate the size of a mortgage loan you can afford, based on the debt to income ratios that lenders usually use, is simply 2 to 3 times your annual household income.