Is there a formula or guidelines to determine how much you can be approved for with regards to purchasing a home without going through the bank? I am just curious to know how much my wife and I would be approved for if we decided to move.
It varies fairly widely from lender to lender, plus your situation of income stability, debt-to-income ratio, total monthly debt service, overall credit worthiness.
Your basic rule of thumb is between 20 to 25% of your gross income is your max payment - although somewhat more aggressively, it can got to about 30%. However, I would use 25% and, personally, I would choose a 15 year mortgage. That is the smartest way to go about it, from purely financial considerations. Structure your downpayment and ultimate budget around those numbers.