Real estate, mortgages, and the credit crisis have been making headlines for many months, and for good reason. Buying a home is likely one of the biggest and most important financial decisions you'll make in your life. Because it is such an important decision and requires careful planning, you want to make sure that you're not getting in over your head when you purchase your home.

One of the reasons that we're in such difficult times in the real estate and lending markets is because many people spent too much money on their new house. In some instances, it was because lenders extended credit to people who may not have qualified in the past, or possibly offered an exotic mortgage to help someone get into the house of their dreams--sometimes without a down payment. In other cases, the real estate market was so hot that people assumed that their home was a sure investment that could provide large returns in a short amount of time. In any case, the people who borrowed too much money or bought a home for all the wrong reasons are finding this to be a very difficult time.

If you're considering a new home purchase, it is crucial that you spend time calculating what you can truly afford. Remember, just because the bank says they will give you a certain amount of money, that doesn't mean you can actually afford it. Everyone's situation is different, and by planning ahead to ensure you're not overextending yourself, you can make it through the difficult times. Here are a few suggestions on how to calculate how much home you can afford.