Before you consider buying a home, it's imperative that you realistically determine how large a mortgage you can afford. Homeowners who are slaves to their mortgage payments often find themselves in trouble when unexpected financial problems arise.

You may qualify for a $600,000 mortgage, but that doesn't mean that you should borrow that much.

Fortunately or not, the credit crisis of 2007 has caused many lenders to be more conservative in setting the limits on how much they will lend to a prospective borrower.

In determining mortgage limits, lenders generally require that your monthly mortgage payment (principal, interest, property taxes and insurance) should not consume more than 25% to 28% of your monthly pre-tax income. Loans insured by the Federal Housing Administration (FHA) offer a little more leeway, with a limit of 29%.

If you've already found the home of your dreams, you know what the property taxes are. If you haven't found that home, contact the city clerk's office in the area you want to buy to find out what the property tax rate is. In estimating your home insurance costs, assume that your annual insurance premiums will be .125% to .250% of the value of the home (value x .00125, or value x .00250). For example, if you're buying a $200,000 home, you can assume your insurance premiums will be between $250 and $500 a year.

When examining your income, your lender will take into account more than just your base salary or hourly wage. He will also look at the amount of overtime pay or bonuses you've had for the last 12 to 24 months. Other considered income will include your net income from self employment, any benefits you receive from Social Security, veteran's benefits or retirement income, alimony, child support, public assistance, workman's comp or disability payments, interest income, dividend income, and other sources.

Mortgage limits are very much affected by your debts. Your lender will determine how much mortgage you can afford by looking at any long term debt payments. These include charge cards, car loans, student loans, real estate loans, alimony, or child support. "Long term debt" is usually considered to be any monthly expenses that will need to be paid for at least ten months.

In general, lenders are comfortable if your monthly mortgage payments plus any other debt payments are less than 33% to 36% of your monthly pre-tax income. Again, FHA loans offer a little more leeway, with a limit of 41%.

You can increase your mortgage limits by lowering your debts. Before you apply for a mortgage, try to pay down or eliminate as much debt as possible, even if that means reducing the amount of money you have available as a down payment.

Your mortgage limit will also affected by the size of your down payment. The more money that you can apply to your down payment, the better. A large down payment will result in a smaller monthly mortgage payment. Not only will you have a smaller payment, but you'll save money over time as you won't be paying as much interest on the mortgage.

A down payment amount of 20% of the price of a home is considered an industry standard. Your down payment can come from a variety of sources, but it cannot be borrowed money. You can use money from savings, investments, the sale of assets, or pretty much any source other than borrowed money. In some cases, you're allowed to use money gifted to you from relatives.

If you can't make a 20% down payment, there are other options. You can get private mortgage insurance, which will allow you to put down as little as 5%. Or you can get an FHA loan, which has down payment amounts as low as 3%. If the home you're looking at is in a rural area, and your income is considered to be low to moderate, you may qualify for an RHS loan, which usually requires no down payment. Or, if you qualify for a veterans loan, you can get a mortgage without a down payment.

In determining how large a mortgage you're willing to assume, don't simply look at the lender requirements. Consider, too, that you'll have upkeep on the house. Also keep in mind other things that affect your quality of life, such as entertainment, vacations, your family, and your sense of financial security.