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How To Calculate What Size Home You Can Afford

The basic rules governing a responsible home purchase aren’t complicated: Don’t spend more than 28 percent of your gross monthly income on the mortgage, and don’t let your total monthly debt payments exceed 36 percent of your gross monthly income. If you have the common sense and discipline to stick that, use a simple housing calculator to quickly figure out what you can reasonably afford. But if you plan on playing “Let’s poke the personal bankruptcy bear” with your next home purchase, remember a few key things: if you’re going to tap retirement savings, try to keep it to a Roth IRA, where you can withdraw $10,000 for a first home down payment without a penalty. Taking money from any other retirement accountand you’ll likely incur an onerous tax penalty. Don’t buy more house than you need, and don’t forget to factor in furniture and any renovations you expect to do – even the most meticulously planned budget will fall apart if it’s predicated on the wrong number.