When buying a house, try to stretch a little, because income will increase and house payments generally will remain the same. However, don't buy more home than is affordable.

Currently households spend between 21 and 54% of their gross income on housing, depending on age, income level, and geographic living area.

The price that is affordable will depend on six important factors:

• Cash available for down payment and closing costs
• Income level
• Debt level
• Credit history
• Type of mortgage chosen
• Current interest rates

Lenders use the following two financial ratios for loan qualification:

Housing Expense-to-Income Ratio: Principal, interest, property taxes, and insurance (PITI) should not exceed 25% to 33% of gross monthly income. Homeowner's association dues and a mortgage insurance premium are added to the PITI if applicable.

Debt-to-Income Ratio: PITI plus other monthly long-term debt should not exceed 34% to 38% of gross monthly income. Long-term debt includes car loans, installment loans, alimony, child support, and balances on charge cards that will take more than 10 months to pay off. Sub prime mortgage lenders may allow borrowers to have a debt-to-income ratio as high as 55%.