What percentage of income should my mortgage payments be? what will the lender use to make their decision?

Generally your lender will assume you can afford up to 36% of your gross salary, but you must be careful, because this is where many people get into trouble. The lender will not figure your property taxes and insurance into that equation, and being based on your gross salary, you could end up with a payment that is a much larger chunk of your net salary. I recommend that you calculate roughly how much property taxes and a monthly mortgage will be, and that should be no higher than 33% of your net income. I hope that helps.