Although the median price of a home continues to drop nationwide, many are finding it difficult to qualify for their first mortgage. A recent survey conducted by the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI), shows that just 2% of new and existing homes sold in California during the previous quarter -- with a median average price of $525,000 -- were affordable to those earning a median family income of $56,200.

By contrast, this number was higher in different parts of the country including Indianapolis , where 89% of those with a household income of $65,100 could afford a median priced house of $113,000 (down from $122,000 the previous quarter.) While home inventory levels have increased nationwide, a 30-year fixed mortgage has shown a slight decline – from a 6.37% APR national average in 2006 to a 6.07% APR national average this year.

With buyers looking for more favorable terms, some have turned to 40-year fixed mortgages and interest-only loans to qualify in today’s market. Extending a term from 30 to 40 years can reduce a monthly payment by as much as 10%. While an interest-only loan can result in a savings of 14% or greater depending upon the length of the initial interest-only payment period.

With lenders becoming stricter with their lending guidelines, many still rely on a borrower’s debt-to-income ratio as a measure of one’s ability to repay a loan. For instance, having a debt ratio of 20 points, means your overall housing expenses account for 20% of your gross income. When you include your total monthly debt obligations (e.g., utilities, food, credit card payments, etc.) your overall debts should not exceed 36% of your gross income. Anything greater, may effect your ability to get the loan amount at the rate you want.

To help improve your overall chances of getting the maximum amount you’re entitled to here are three simple steps you can take to keep your debt ratio in check:

Come up with a higher down payment. A higher down payment means you need less to borrow which translates into a lower monthly mortgage payment. This can help to lower your debt ratio.

Lower your outstanding debt. Pay off any credit cards which may have a short payment period remaining (3 to 6 months.) Not only will this help to lower your debt ratio but may increase your FICO score and possibly qualify you for a better rate.

Buy only what you can afford. Estimate the minimum and maximum amount you’re willing to pay for a home. Use a mortgage calculator to determine how much you can afford without going over budget. Don’t forget to include things like your utilities, gas, etc. in your calculations.

Remember, comparison shopping for the best mortgage rate online [insert link to mortgage rate tables] can help you to properly determine what amount you should be able to qualify for and what type of loan you can afford.