How much of a mortgage loan can I afford by borrow when buying a home? This is one of the most common question among first-time home buyers, and with good reason. If you take on a bigger monthly payment than you can afford, you could become another foreclosure statistic. And that’s bad for all parties involved — for you, for the bank, and even for the economy.

So let’s talk about how you can determine the amount you can afford, before you even start talking to mortgage lenders.

Lenders Cannot Tell You What You Can Afford

Many home buyers wrongfully assume that a mortgage lender will help them determine their affordability level. That’s not the lender’s job. It’s yours, as the borrower.

The lender can tell you what they are willing to lend you, and whether or not you’re qualified for a loan. But they cannot tell you where your financial comfort zone lies. You must determine that for yourself. Here’s how to go about it.

How Much of a Mortgage Can You Handle?

Assuming I’ve convinced you that this is entirely your decision, we can move on to the next logical question. How do you determine how much of a mortgage you can afford to borrow?

The first step is to determine your monthly housing budget. This is the amount of money you could afford to put toward a mortgage payment each month, after all of your other monthly expenses have been covered. So start by adding up your monthly expenses — car payment, credit card payments, food, gas, savings, entertainment, etc. You can leave your rent off, because that payment will disappear when you buy a house.

Next, you can take a hypothetical sale price for a home (or better yet, the actual sale price for a home you’re interested in) and put it into a mortgage calculator. You can find these calculators online, and most of them are free to use. These tools will ask you for several pieces of data — (A) the principal amount you need to borrow, (B) the interest rate, (C) the term or length of the loan, and (D) the property taxes. Some of these items are optional, such as the tax and interest amounts. But you’ll get more accurate results by entering as much information as possible.

When you run the numbers, you’ll have a better idea of how much mortgage you can afford to borrow, because you’ll have an estimate of your monthly payment based on the principal amount you want to borrow. Compare that number to the amount of money you can afford to pay each month (after your other expenses), and you’ll be honing in on your mortgage affordability level.

Keep in mind that the interest rate the lender gives you will partly determine the size of your monthly mortgage payments. So until you know what kind of rate you qualify for, you’ll have to use the default setting for “interest rate” on the mortgage calculator. If you do have all of the pieces of the puzzle (the principal, the property tax amount, the interest rate, etc.), you’ll get a fairly accurate idea of what you can expect to pay each month for a certain mortgage amount.