How Much Should You Borrow?

Borrow as little as possible. If you borrow more than you can afford, you won't be able to make your monthly mortgage payments, and you'll be forced to sell your home or go into foreclosure.

To figure out how much you can afford to borrow, calculate your debt-to-income (DTI) ratio. Your DTI shows you how much of your income you spend every month to cover your debts.

There are two types of DTI numbers: front ratio and back ratio. Front ratio shows you how much you spend on all debt, but does not include your housing payments. The back ratio shows how much you spend on debt and housing combined.

You want your DTI front ratio to fall at 28% or lower, and your back ratio to fall at 36% or lower.