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Question:


My wife and I just recently married and we would like to purchase our first home. How do we know if we can afford it?
-NashvilleNewlywed


Answer:


There are several rules of thumb. You can afford a home if it costs no more than three and a half times your combined salary or if the monthly mortgage payment is no more than one-third of your combined salary.
 
If you’re the detail-oriented sort, the website bankrate.com, an authority on all things connected with interest rates, has a calculator that allows you to plug in numerous bits of information related to your monthly income and expenses to determine how pricey a home you can afford and how big a mortgage you can handle. Here’s the url: http://www.bankrate.com/calculators/mortgages/new-house-calculator.aspx.
 
Whatever formula you use, if you can only make the numbers work with a gimmicky mortgage – 1 percent for three years, then a reset, then a balloon payment and the bank gives you a free toaster – you’re probably buying too much house.
-Conrad de Aenlle



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