海角大神

If you鈥檙e thinking now鈥檚 the time to pull the trigger on a home purchase, I agree. In fact, I just went in with a friend of mine and bought another house 鈥� you鈥檒l be hearing more about that in future posts.

But just because you can buy a house doesn鈥檛 mean you should. Consider this recent email鈥�

Dear Stacy,

Like most Americans, my dream was to own a house. My goal was to do it before 30. Well, I turned 30 this January and still have not gotten my first house. After reading your book "Life Or Debt 2010," I have slowly climbed out of deep student debt 鈥� I had over $15,000 on just one loan.

My question is: Do you think a house that鈥檚 $110,000 with yearly taxes in the $4,200 range is to much for a person making $34,000 a year? I currently have $10,000 saved for closing costs and hopefully some down payment. The VA loans don鈥檛 require a down payment, but I never want to be in debt again!

My parents told me that鈥檚 a normal tax range here in Buffalo, NY. I am going back to school towards a degree in accounting, so I鈥檒l hopefully make more after school is over. (I鈥檓 going back to school free on G.I. Bill.)

Also, with the VA loan. there is no PMI. Should I keep saving until I have a more sizable down payment? Or buy the amazingly priced 1,900-square-foot home or one of the others like it in my area?

- Chris

Now let鈥檚 add more detail on Chris鈥� situation, as well as my advice.

How to figure out how much house you can afford

In my opinion, it鈥檚 time to buy houses. (Hence my recent story "Housing Has Bottomed 鈥� Time to Buy.") But no matter how good the deal or strong the desire, buying anything you can鈥檛 afford is traveling down the road to ruin.

Let鈥檚 start with one of a plethora of online calculators available to answer this question. I used , but there鈥檚 a similar one at Yahoo and other sites.

Here are the questions it asked, along with the answers I provided for Chris鈥�

Income and Expenses:
听Annual Income: $34,000
听Monthly child support: $0
听Monthly car loan: $0
听Monthly credit card payments: $0
听Monthly association fees: $0
听Other monthly obligations: $0

Mortgage Assumptions:
听Annual interest rate: 4 percent
听Mortgage term: 30 years
听Down payment: $5,000 (I assumed he鈥檇 use half his available savings for the down payment, half for closing costs)
听Annual property taxes: $4,200
听Annual insurance: $500 (I pulled this number out of the air)

Result:
听The max house Chris can afford is $89,134.

As you can see, the $110,000 house Chris has his eye on is a bit out of reach. And that鈥檚 in the best-case scenario, since I assumed he has no other debts or monthly obligations.

This occurred because most lenders cap the maximum you spend on a mortgage payment (including taxes and insurance) at 28 percent of your gross monthly income. Chris鈥� income is about $2,800 monthly 鈥� and 28 percent of that is about $790, which would allow Chris to support a mortgage of around $84,000. Add his $5,000 down payment, and you end up with $89,000.

What should Chris do?

Here are several options Chris could consider鈥�

1. Get a partner. I bought my first house in 1978 at the age of 22. It was a four-bedroom, two-bath home with a pool. The cost was $85,500 and my income was 鈥� believe it or not 鈥� $12,000 a year. How did I do it? I went in on the house with a friend. Together, we were able to come up with the down payment, and because the seller owned it free and clear, they carried back the mortgage so we didn鈥檛 have to qualify for a loan. After we moved in, we rented the remaining bedrooms to other friends to make ends meet.

I鈥檓 still using a version of that technique today. As I said at the start of this article, I just bought a house with a friend. This one was more expensive, neither of us will live in it, and we paid cash. But the principle is the same: Bringing in a partner requires half the money and results in half the risk.

The potential nightmare of choosing the wrong person for any financial partnership should be obvious and therefore approached with extreme caution. (My rule of thumb: Never partner with anyone with less money than you.) But at least it鈥檚 something to consider.

2. Buy a cheaper house. If Chris can buy a 1,900-square-foot house for $110,000, he can surely find something livable for less. He doesn鈥檛 say whether he needs that much space 鈥� we don鈥檛 know if he has a family, for example 鈥� but that鈥檚 a lot of house for one person. 听

One of the dumbest things Americans do is buy the biggest, fanciest things they can possibly afford. And nowhere is this mistake more evident than in home shopping. When you work with a real estate agent, the first thing many do is what I did with Chris above: use a formula to determine the most expensive house possible. They then proceed to show you houses at that upper limit, and often above it. Result? You let vanity replace common sense, buy more house than you need, leave no margin for error, and end up furnishing, heating, cooling, maintaining, and paying taxes on rooms you don鈥檛 use. Dumb.

Granted, because of the leverage offered by real estate, there鈥檚 an argument to be made for buying as much property as you can, especially if your goal is to maximize returns. But if you鈥檙e buying simply because you want your piece of the American dream, determine what you need (as opposed to want) and spend as little as possible to get it. There鈥檚 no reason to create unnecessary risk by over-leveraging.

3. Wait. Although many experts think the housing market has bottomed, virtually none are expecting an immediate recovery. In other words, there鈥檚 no rush. Houses will probably still be affordable next year, or even when Chris graduates with his accounting degree. Something to think about, especially considering houses require time, and he鈥檒l soon be working and going to school.

Bottom line? My advice to Chris is to either somehow share the cost, set his sights a bit lower price-wise, or wait till he has more money and more time.

Stacy Johnson is the founder and CEO of , a consumer/personal finance TV news feature that airs in about 80 cities as well as around the Web. This column first appeared in Money Talks News.