Money Talks: Can I Afford This House?

After years of falling prices and foreclosures, it TMs hard to imagine that owning a home is still the American dream...

Yet for many people, it definitely still is. For example, Chris. He sent me this email...

"Do you think a house that's $110,000 with yearly taxes in the $4,200 range is too much for a person making $34,000 a year? I currently have $10,000 saved for closing costs and down payment.

It's a simple enough question to answer. All you have to do is go to any number of calculators online and it'll tell you.

I put in the cost of the house, his down payment, say this is his only debt, put in the property taxes, and estimate insurance, and there you have it: he can't afford that house with that income.

That's because most mortgage lenders don't want you to spend more than 28 percent of your income on housing costs.

In Chris' case, that means he can afford about an $89,000 house. So, does that mean Chris and other house hunters like him are out of the market? Not necessarily.

Chris could buy a cheaper house. He could wait until he saves for a bigger down payment. He could do what I did on my first house, and actually just did recently on this one - partner with a friend. But the real lesson to be learned here is you don't want to buy the max you can afford - you want to buy the house you can comfortably afford.

The more house you buy, the more you have to furnish, clean, maintain, heat and air condition. Buy what you need - not what you want, and especially not what some real estate agent tells you to buy.

Want to learn more about the right way to buy a house? Go to and do a search for "real estate."

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