What size mortgage do I qualify for?
Debt-to-income ratio should be less than 50% of gross income 

Lenders look at a number of variables when they're considering whether to approve a mortgage. Among those variables is the amount of cash the borrower has available for a down payment and closing costs. Also important are the borrower's employment and credit history, and debt-to-income ratios. If a borrower's debt-to-income levels don't fall within certain guidelines, the mortgage might not be approved.

Until recently, a typical qualifying ratio was 28/36. The first number of the equation, called the front-end ratio, is determined by dividing your proposed monthly housing expense (principle, interest, taxes and insurance, also called PITI) by your gross monthly income (income before deducting for income taxes).

The second number, called the back-end ratio, is determined by dividing your total monthly debt (including your proposed PITI) by your gross monthly income. A borrower with good credit, a front-end ratio of 28 and a back-end ratio of 36 had no trouble qualifying for a mortgage.

But today, if your back-end ratio is less than 50 percent of your gross income, and you have good credit, you'll probably be approved for a mortgage. This liberalization of qualifying ratios makes it easier for borrowers to qualify for larger mortgages, which is good news for buyers who are trying to buy a home in an area where home prices are high.

In New York City or San Francisco, for example, it's not uncommon for buyers to pay more than $500,000 for a starter home. First-timers are frequently short of cash. But, if you can scrape together enough cash for a 5 percent down payment plus closing costs, and you have good credit, you can become a homeowner if your front-end ratio is under 45 and your back-end ratio doesn't exceed 50.

There is a downside to easy mortgage money and that is that Americans are taking on more and more debt. According to a study by Harvard University's Joint Center for Housing Studies, three in 10 U.S. households are spending 30 percent or more of their income on housing.

Many home buyers depend on two incomes to qualify for a mortgage. If one of the partners is laid off, leaving the couple with one income instead of two, the percentage of income that goes to housing can skyrocket. It's not surprising that mortgage delinquencies are on the rise.

It may be tempting to mortgage yourself to the hilt. A larger mortgage means a bigger tax write-off because interest paid on a home mortgage is generally tax-deductible. There are also benefits to be derived from using as little of your own money to purchase a valuable asset, called leverage.

HOUSE HUNTING TIP: However, before you saddle yourself with the largest mortgage you can get, consider what makes good sense in terms of your quality of life, your overall financial situation and your long-term economic goals. Many buyers are deciding to keep their cost of housing down so that they can diversify their investments, avoid being house-poor and have plenty of cash reserves to handle unexpected emergencies.

Deciding on a smaller mortgage will mean buying a less expensive home, unless you have enough cash saved to make up the difference. However, keep in mind that whatever you buy should suit your needs for at least five years. Buying with a shorter time frame in mind is risky because real estate markets tend to be cyclical.

THE CLOSING: Don't overlook a condominium as an affordable first investment. Unlike years past when condos were considered a lousy investment in comparison to detached homes, condos are now appreciating at twice the rate of single-family residences.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers," and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.