To determine what price home you can afford to buy, you can put the most frequently used lenders' rule-of-thumb to work the 28% and 36% formulas. This is the test many lenders use to qualify applicants for conventional mortgage loans.

The 28% test permits you to spend no more than 28% of your gross monthly income on your total monthly costs, including principal, interest, taxes, and insurance (PITI) and homeowners association fees, if any. For example, 28% of a $3,600 gross monthly income would qualify for a $1,008 per month payment.

The 36% limit covers both your PITI and long-term debts (more than 10 months) such as alimony and/or child support, auto loans, student loans, and personal loans. For example: 36% of $3,600 would qualify for a $1,296 payment per month (PITI plus any recurring debt/$1,008 monthly payment plus $288 monthly debt=$1,296)

In our examples, the affordable loan payments for an income of $3,600 per month is a range between $1,008 for the house payment alone and $1,296 per month including other monthly debt payments.