How much house can I afford?

The amount you can afford to spend on housing depends on many things. As a general rule, a lender says that you can afford a house that costs two and one-half times your annual income. But be careful with "general rules." They're only designed to give you a ballpark idea of where to start thinking.

Some lenders use "debt ratios" to determine how much house you can afford. They commonly will allow you as a borrower to spend 30-35% of your monthly gross income on total monthly debt payments. That means that the more you already owe on non-housing debts, the less house you can afford.

Avoid the temptation to push your monthly payments to more than 35% of your gross monthly income. You want to be able to make that monthly mortgage payment for years and years to come.

Brenda Procter, M.S.,  Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri-Columbia

If you'd like to learn more about this and other personal finance topics, the University of Missouri offers 'Personal & Family Finance,' a correspondence course, through the Center for Distance and Independent Study (800-609-3727). Information about this course is available at http://cdis.missouri.edu/CourseInfo/DetailCourseInfo.asp?1985.

Last update: Tuesday, July 05, 2005