Try to spend no more than half your after-tax income on housing, one expert suggests

By Mary Ellen Slayter
THE WASHINGTON POST
Sunday, January 20, 2008

For most people, a home is the most expensive purchase they will ever make. Figuring out how much they should spend can be overwhelming.

Online calculators can give a ballpark idea but shouldn’t be relied on for a final decision, said Paul Cocozza, a certified financial planner in Arlington, Va. “That’s taking too much of a shortcut for such a large commitment.”

How to decide? Your budget is a function of your income, household expenses, credit and savings.

Traditionally, the guideline was that no more than 28 percent of gross income should go toward housing expenses, including the mortgage payment, homeowners insurance, homeowners or condo association fees, and real estate taxes. No more than 36 percent would go toward those housing costs plus all other debt expenses, including car notes, school loans and credit card payments.

Many lenders have stretched those requirements, allowing up to 39 percent of gross income to go toward housing and other debt. But just because a lender says you can afford a loan doesn’t mean you should spend that much. >>>Click for Full Article

Tags: buyers, financing, lending //