The home is usually  the largest purchase a person will make in their  lifetime. Most likely this means getting a mortgage. The mortgage amount determines the size and location of the new home. The mortgage amount also affects the payments you will make.  

Lending institutions (ie. banks, credit unions, trust companies and insurance companies) need to know a person can  repay the money borrowed. Hence, the loan application process is quite lengthly and thorough. Lenders look at  your personal income, credit history, debt load, employment history and collateral, including the value of the property to be purchased.

The size of the loan is generally calculated using set formulas :

Gross Debt Service Ratio (GDS) +Total Debt Service Ratio (TDS).

GDS is the percentage of the  gross monthly income (before taxes). The GDS is  required to cover monthly payments on mortgage principal, mortgage interest, property taxes and sometimes heating (often abbreviated as PITH). The GDS should not exceed 30% to 32% to be eligible for most mortgages.

Because many people also owe money to other lenders (car loan, student loan, credit cards, etc.), TDS offers a more accurate estimate of what a person  can afford. TDS is the percentage of your gross monthly income required to cover PITH plus any other debts. Your TDS should not exceed 40% of your gross monthly income.

There are many other factors that will impact the final mortgage amount.  For example a poor credit history or a bad employment record can disqualify a person altogether or significantly affect  the total of the mortgage. Remember if you are approved for a large mortgage it is no guarantee that you can, in reality, afford the monthly payments.

A person  must examine all their monthly expenses - especially the expenes not accounted for in the lender's calculations (entertainment, vacations, charities,  food, clothing, etc.). Remember  a person  needs  a lump sum down payment. That means at least 25% for conventional mortgages and as little as 5% for high-ratio mortgages.Money is also needed  to cover closing costs.