Buy or Sell a Home| Real Estate Pr

You want to buy a house. What can you afford? The old rule of thumb was easy: multiply your annual family income (before taxes) by 2 and that was your price range. Today, it's not that simple. To figure out what you can afford, there are three basic factors to consider: the down payment (most lenders require between 10 and 20 percent); your ability to qualify for a mortgage; closing costs (they can range between 2 and 7 percent of your mortgage loan).

Whatever kind of lender (mortgage bank, commercial bank, savings-and-loans association, credit union, etc.), the institution is primarily concerned with your willingness and ability to repay the home loan. Basically, here is what the lender wants to see:

1. That no more than 28 percent of your gross monthly income will be spent on housing (your mortgage principal and interest, taxes, insurance, etc.);
2. That your monthly recurring debt (your housing costs plus all your other personal debt - e.g., auto loan, credit cards) does not exceed 36 percent of your gross monthly income.

These numbers, however, are somewhat flexible, depending on your individual financial status. Also, the limits may vary (go up) for states like California where housing costs are high.

Before granting you a loan, the lender will carefully check out your credit history, your assets, and the property you wish to buy (to be sure the home has adequate value). All lending institutions have their own formulas for determining just how big a mortgage they will give you. Even if you are not quite ready to buy a home, you might want to stop in at a lending institution and "prequalify" for a loan - you'll get an idea of where you stand. Also, if you are in the market for a house, you should delay making any major purchases (like a car, furniture or appliances); on paper, your debt will be lower and your cash assets higher.