Don't bite off too much house

Fixing a glitch in the calculators

Most Internet mortgage calculators use the 28%-of-total-income figure. If you want to see how much mortgage you could afford under other scenarios, adjust your income by using the following multipliers:

* Gross income

Then, use the calculators.

Your own math is more important

• Figure out how much money you need to contribute to various goals, such as your retirement and your kids' college educations.

• Estimate how much your house is going to cost you in maintenance and repairs each year (figure about 1% to 3% of the home's total value annually, depending on its age and condition -- see "The hidden costs of homeownership" and "Remodeling? It's a waste of money" for more details). Then see how much of your remaining income is eaten up by your housing costs (including insurance and taxes), and see how you feel about that.

All that math making your head hurt? Here's the short version: You'll probably be most comfortable using the 25% lid. You may want to go even lower if:

• You plan to have children. Kids can be expensive, and many couples discover they want to have the option of one partner staying home or working part-time once kids arrive. That's tough to do if you need every penny of both incomes to make ends meet. If you really want to be conservative, do your calculations based on the income you think you'll have post-baby.

• You have an expensive hobby, like travel. Most homeowners are willing to put their wanderlust on the backburner to buy more house. If that's not you, buy less house.

• Your income varies considerably. Most American workers have variable incomes, thanks to the prevalence of overtime pay and bonuses (and, these days, pay cuts and reduced hours). If yours swings wildly from year to year, though, consider basing your calculations on your average earnings over several years or (even more conservative) on the minimum you expect to make.

You may think you can't possibly limit your housing expenses by that much, especially if homes cost a lot where you live. However, you can stretch further if:

• You're absolutely debt-free. No credit card debt, student loans or car payments -- and none anticipated in the near future? You probably can handle a bigger nut.

• You don't have to worry about retirement. Many teachers and civil servants have terrific pensions -- so good that to be sure they'll be fine, they just have to throw a few bucks each year into an IRA or deferred-compensation plan.

• You're pretty sure your income will climb steeply in coming years. Fresh out of law school and doing a few years in the public defenders' office? If private practice is your goal and you don't want to wait to buy a home with the bigger income that's coming, stretching now can work out okay.

Updated Nov. 18, 2009

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