First, using the amount of your own income and debts, calculate the debt-to-income ratio, the Federal Housing Authority’s recommendations, and the housing expense ratio. You will come up with a range of mortgage payments that are within your means. Take the high end of that range and run through the mortgage calculators at www.freddiemac.com, www.bankrate.com, or www.hud.gov to see what your monthly mortgage payments would be.
Now spend the next two months setting aside that payment amount for housing. Of course, you will need to pay your current rent out of the amount set aside. After you take out your current rent, put any excess into savings. If you can live for a couple of months with that increased amount going to housing, you know you can afford a house in that price range. This is also a great way to accumulate a down payment.