If you're buying a home for the very first time, it is one of the most significant and thrilling financial events of your life. However, prior to getting into the process with a real estate agent, you should have a good understanding of a sensible budget. You must ask yourself--how much can I afford to pay for a house? You can get the answer to the question how much mortgage you can afford by applying three rules of thumb or percentages of your monthly income.

The Guideline of 28: The standard guideline for finding out how much can you afford to pay for a home is that your monthly housing payments must not go over 28% of your gross monthly income or your monthly income prior to tax payment and other expenditures. For instance, if you and your spouse have a joint yearly income of $90,000, your mortgage payment must not exceed $2,100.

The Guideline of 32: The following rule lays down that your overall housing payments (comprising property taxes, insurance, mortgage and association fees) must not go over 32% of your gross monthly income. This signifies for the same couple, the overall monthly housing payment must not be over $2,400 every month.        

The Guideline of 40: Ultimately, your overall debt payments (consisting of car payments, credit card payments or student loan payments) must not surpass 40% of your gross monthly income. For this instance, just $600 remains for payments such as minimum payments for credit cards and car payments. If your debt burden is more than this figure (8%) of your gross monthly income, you must only obtain a mortgage that would make your overall debt burden equivalent to 40% or lower of your monthly income.

Work out your mortgage amount: Your interest rate would ascertain the real price range you're able to afford. Nevertheless, you can calculate your budget. If an interest rate of 6% is charged on a 30-year fixed rate mortgage loan on an average, your monthly mortgage payments would be around $55 for each $10,000 borrowed.

• $2,100/$55 = 38.18
• 38.18 x $10,000 = $3,81,800 (your highest mortgage amount)

Take into consideration your down payment: It is expected that you would have a down payment of minimum 10%-20% of the purchase price of your future home. You should sum up this with your maximum mortgage amount and you can have a clear idea about the maximum you’re able to spend on your home. Remember that if you make a down payment of less than 20%, it is necessary for you to pay private mortgage insurance. This would raise your non-mortgage housing costs and lower the amount of mortgage you can afford.