[Rick Lee]

A safe rule of thumb for figuring out what you can afford is to use the old school, convetional financing debt-income ratios. Of course, nowadays these probably mean nothing, thanks to all the "exotic" loans out there and people betting their futures on crazy appreciation.

But the way it was done not to long ago was this: Figure out the total monthly payment of the place you want (after you know how much you can put down and what your loan amount will be). This is your PITI - principle, interest, taxes and insurance. Divide that amount by your gross monthly income and if it's much above 28%-30%, then you may have reason to worry. The real factor is when you add the housing debt to your total revolving monthly debt like if you have car payments, credit card debt, student loans, etc. Divide that total monthly debt by your gross monthly income and if it's much above 36%, then it's probably too much house for you. These are called front and back ratios and Fannie/Freddie used to set them at 28% for the front and 36% for the back as how to determine if a house was aoffordable for someone. I've seen plenty of folks with crazy high ratios get by, but there have to be a lot of offsetting factors like huge bonus or commission checks, tons of cash reserves, etc.