But now that 30-year fixed mortgage rates are at 8.5 percent and approaching 9 percent, you have to reduce the factor to approximately 2.5 times your gross annual income. Using the same income examples above, $50,000 times 2.5 equals a maximum loan amount of approximately $125,000. And 2.5 times $80,000 equals a loan amount of approximately $200,000.  So you can see that rising interest rates definitely have an impact on housing affordability.

But please keep in mind that this "rule of thumb" is a very rough estimate of your buying power and should not be considered the final word.  In fact, if you have good credit, you can probably qualify for much more than the numbers indicated above.

Besides your credit, another very important factor in determining your maximum home price is the amount of cash that you have available for the down payment and closing costs.  For example, if you had enough income to qualify for a $150,000 mortgage, but you also had $100,000 in the bank, you could afford to buy a $250,000 house (excluding closing costs for simplicity).

Another factor that determines how much you can qualify for is the type of loan for which you are applying.  For example, rather than a traditional 30-year fixed rate loan, you might choose "2-1 buydown" loan.  That is a 30-year fixed rate loan in which the interest rate is "bought down" two percent the first year, one percent the second year and then fixed for the remaining 28 years of the loan term.  For example, at approximately the same closing costs as a 8.5 percent 30-year fixed rate loan, you could get a 2-1 buy-down loan starting at about 7.625 percent.  You would pay an interest rate of 7.625 percent the first year, 8.625 percent the second year and 9.625 percent for the remaining 28 years of the loan.  Obviously, that final interest rate is far less attractive than an 8.5 percent fixed rate loan, but the lower 7.625 percent starting rate allows you to qualify for a larger loan amount.

For example, the monthly loan payment on a $150,000 mortgage at 7.625 percent would be $1061.69, while the payment at 8.5 percent would be $1153.37.  While that $91.68 difference in monthly payments may not seem like much, it may make the difference between qualifying or not qualifying for the loan amount you want if your income is not suffient at the higher payment.

There are far too many other mortgage qualifying factors to cover in this brief column, so I would recommend that you find a good mortgage loan officer and discuss all your options in detail.  Then you can get "pre-approved" for a loan amount and you will know exactly how much you can afford.