About 20 years ago, buyers were told to consider their future income when they purchased a house.  For example, if they qualified for a $100,000 loan (a lot of money back then), but wanted to keep the purchase price around $85,000, they were encouraged to go ahead and spent the full $100,000 based on anticipated raises.

Yes, my first Realtor told me that.

However today I advise buyers of the exact opposite.  So how can really tell how much home you can afford?  My advise is you could anticipate what your monthly mortgage payment would be on the house you think you’d eventually like to buy.  Pay your regular rent, but pay yourself the different in a savings account of what that future house payment will be.

You will be able to save ahead for down payment and closing costs this way, while getting a solid reality check on whether you can afford that mortgage payment.

Another rule of thumb… make sure your house payment doesn’t exceed 25 percent of your income.  Okay, perhaps up to 32 percent might be okay but anything above that could be dangerous to your financial health.

Approach your ability to pay with plenty of skepticism, save ahead in case of emergencies, and don’t forget to plan for other expenses that go along with home ownership.  If you’ve already done this, consider buying now so you can take advantage of the $8000 tax credit being offered by the feds.  You must have a home under contract by April 30th and close by June 30th to qualify.