You also need to consider the front-end debt-to-income ratio, which calculates your income vis-à-vis the monthly debt you would incur from housing expenses alone. Usually, lenders like that ratio to be no more than 28%; during a recession, they might let it slide to as much as 31%. For example, if your gross income is $4,000 per month, you would have trouble getting approved for $1,720 in monthly housing expenses even if you have no other obligations. For a front-end DTI of 31%, your housing costs should be under $1,240.

Why wouldn't you be able to use your full debt-to-income ratio if you don't have other debt? Basically, because lenders don't like you living on the edge. Financial misfortunes happen—you lose your job, your car gets totaled, a medical disability prevents you from working for a while. If your mortgage is 43% of your income, you'd have no wiggle room for when you want to or have to incur additional expenses.

Most mortgages are long-term committments: Keep in mind that you may be making those payments every month for the next 30 years. Accordingly, you should evaluate the reliability of your primary source of income. You should also consider your prospects for the future and the likelihood that your expenses will rise over time. Being able to afford a new house today is not nearly as important as your ability to afford it over the long haul.

Needless to say, being able to afford a house doesn't answer the question of whether now is a good time for you to act on that option.

Along those same lines, there are years when real estate prices are depressed and years when they are abnormally high. If prices are so low that it is obvious you are getting a good deal, you can take that as a sign that it might be a good time to make your purchase. In a buyer’s market, depressed prices increase the odds that time will work in your favor and cause your house to appreciate down the road.

Interest rates, which play a large role in determining the size of a monthly mortgage payment, also have years when they are high and years when they are low. Obviously, lower is better. For example, our Monthly Mortgage Payments Calculator shows that a 30-year mortgage (360 months) on a $100,000 loan at 3% interest will cost you $421.60 per month. At a 5% interest rate, it will cost you $536.82 per month. At 7%, it jumps to $665.30. So if interest rates are falling, it may be wise to wait before you buy. If they are rising, it makes sense to make your purchase sooner rather than later.

The seasons of the year can also factor into the decision-making process. If you want the widest possible variety of homes to choose from, spring is probably the best time to shop. “For Sale” signs tend to spring up like flowers as the weather warms and lawns turn green. Part of the reason relates to the target audience of most homes: families who are waiting to move until their kids finish the current school year, but want to get settled before the new year starts in the fall.

If you want sellers who may be seeing less traffic—which could make them more flexible on price—winter may be better for house-hunting (especially in cold climates), or the height of summer for tropical states (the off-season for your area, in other words). Inventories are likely to be smaller, so choices may be limited, but it is also unlikely that sellers will be seeing multiple offers during this time of year. Some savvy buyers also like to make offers around holidays, such as Christmas or Easter, hoping that the unusual timing, lack of competition, and overall spirit of the season will get a quick deal done at a good price. 

Save the proceeds from your current home in a savings account and determine whether or not—after factoring in other necessary expenses like car payments or health insurance—you will be able to afford the mortgage. It is also important to remember that additional funds will have to be allocated for maintenance and utilities. These costs will undoubtedly be higher for larger homes.

When you calculate, use your current income. Don't assume you'll be making more money down the road. Raises don't always happen, and careers change. If you base the amount of home you buy on future income, set up a romantic dinner with your credit cards. You're going to end up in a long-lasting relationship with them.

However, if you can handle these extra house costs without sweating extra credit card debt, you can afford to buy a home—as long as you have saved up enough money for your down payment.

It's best to put down 20% of your home price to avoid paying private mortgage insurance (PMI). Usually added into your mortgage payments, PMI can cost an extra $50 to $100 per month.

A smaller down payment won't mean buying a home is impossible. You can buy a home with as little as 3.5% down with an FHA loan, for example, but there are bonuses to coming up with more case. In addition to the aforementioned avoidance of PMI, a larger down payment means:

 

While there are many benefits to a larger down payment, don't sacrifice your emergency savings account completely to put more down on your home. You could end up in a pinch when unexpected repairs or other needs arise.

Affordability should be the number one thing you look for in a home, but it's also best to know you are going to want to live in the home you pick for at least 10 years. If not, you could get stuck in a home you can't afford in a city you're ready to leave. If you can't estimate what city you are going to live in and what your 10-year plan is, it's not the right time to buy a home. If you want to buy a home without a 10-year plan, buy a home that is priced much lower than the maximum you can afford. You'll have to be able to afford to take a hit if you have to sell it quickly. Another exception: If you work for a company that buys the houses of relocated employees—one name for this is a guaranteed buyout option—it's also safe to buy without a 10-year commitment.