The first step is to estimate the size of the monthly payment a mortgage company will consider that you are qualified to make:

Take your gross monthly income (that's before taxes and other deductions) and multiply it by .28. This works out to just over 1/4 of your gross income.

Mortgage companies use something called qualifying ratios to determine how much they'll lend you. Most mortgage companies use either a 28/36 ratio or a 25/33 ratio. The first number in each pair is the percentage of your gross income that the lender would consider acceptable as a monthly payment on the combined total of your mortgage, mortgage insurance, property taxes, and property hazard insurance (i.e. if you make $3,000 per month, 28% of that is $840 per month).

The second number in each pair is used when all debt payments are considered, not just the mortgage (- i.e. if you make $3,000 per month, but also have a $250 a month car payment, 36% of $3,000 is $1,080, minus the $250 car payment equals $830 for your montly house payment).

As you can see, in this example the numbers work out to be almost the same. Obviously if you have more debt you would qualify for less.

Once you have worked out your maximum permissible monthly payment, the next thing is to consider what the mortgage interest rate is. When you know both the rate and the maximum permissible monthly payment, it is possible to calculate the maximum loan you qualify for. For example, at 6.5% on a $100,000 loan, your monthly payments for principal and interest on a 30 years fixed interest rate loan would be $632.

As mentioned above, you also have to figure into your monthly payment your property taxes (about 0.1% of the property's value per month), your home-owner's property hazard insurance (about 0.03% of the property's value per month) and your mortgage insurance payment (- on an FHA loan this is about 0.1% of the loan amount per month)
[If you put 20% or more down on the purchase of your home, no mortgage insurance payments are required]

Ask me to do the calculations for you, if you wish. Alternatively, I can put you in touch with some great mortgage agents, who would happily advise you how to get the loan that best works for you and minimizes your payment.