Have you found the house of your dreams but don't know whether you can afford it? Unless you can pay the entire cost of a home up front, which may not be the smartest decision in any case, buying a home means qualifying for a mortgage.

There are three factors that come into play before the process begins:  Your gross income, your debt and your credit history.

Most mortgage brokers (lenders) base their home loan qualification on both your total monthly gross income and your monthly fixed debt payments., and your credit history. In general, most lenders require that you spend no more than 28% of your gross income on your mortgage, taxes, and insurance, and your total debt expense cannot exceed 36% of your total gross monthly income. 

They fear if too much of your income goes toward housing, you face a greater risk of not making your mortgage payments on time. Bear in mind that if you’re married and buying a house jointly with your spouse, both of your incomes count. If you’re not married but buying with a partner, you may want to look for a lender who will consider both incomes.

Mortgage Brokers look at how much you have owing on your credit cards, if you have any car payments, college tuitions, or other loans you’re repaying. Again, they want to be sure you’re not overburdening yourself and that you will stay on top of all your obligations.

They will want to see your credit report that shows a strong history of repaying borrowed money. If you have always paid your bills on time you are more likely to qualify for a mortgage.

Experts suggest you get a copy of your credit report two months before applying for a mortgage. That will give you advance notice about credit problems a potential lender might question. You may be able to provide an explanation as part of your application. Or you may find errors that can be corrected before questions arise.

If you are turned down from the lender, you have the right to a free copy of your credit report to see how your financial history appears. You’re also entitled to a free report from each of the major credit bureaus once a year.

The amount you pay for your mortgage depends on the principal or the amount you borrow, the interest rate, and the term, or length of time you take to repay. You may also find that your lender will offer you a lower interest rate if you choose a shorter term, reducing your costs even more.

However, if you fail to meet the terms of the mortgage, such as not repaying principal and interest on schedule, the lender may foreclose, or take control of the property, and may even sell it to recover the amount due.

Use this mortgage calculator and find a quick and easy way to work out your monthly mortgage payments and find out how much you can afford before you borrow.