Basic Guide to Buying a House...Part 2

What kind of home can I afford?

In general you can afford a home worth about three times your annual household income. If your combined income is $60,000, you could afford a $180,000 house.

If it looks like you can't afford a home then consider getting a bigger home than you need and renting out part of it. This is especially applicable to single people, where the smallest home they can find might be too big for their needs. Later as your income increases and you can afford to live without renters you can do so, and you'll come out ahead by having bought sooner rather than later. Anyway, here's how the costs compare when you rent out part of a home you buy:

House Size	Total Cost	Rent out...	Your Net Cost
2 bedroom	$1200/mo.	1 room for $400/mo.	$800/mo. for 1 room
4 bedroom	$1800/mo.	2 rooms for $800/mo.	$1000/mo. for 2 rooms
Duplex (2 rooms each side)	$1800/mo.	One side for $900/mo.	$900/mo. for 2 rooms

In 2006 a friend of mine was paying $600 to live in a tiny 1-bedroom apartment.  She bought a 4-bedroom house that cost her $1100/mo., and rented out two of the rooms for $600/mo. total. So her net cost per month is only $500. She's spending $100/mo. less, and she has twice as much room, a yard for her dog, and she owns her own house.

Earlier I said you can afford a home worth three times your income. Here are factors that could allow you to buy a home worth more or less than that.

Increases your buying power	Decreases your buying power
No debt	Debt, esp. big debt
Large down payment	Small down payment
Good credit	Bad credit
Duplex where you can get rental income	Single-family home, no bedrooms rented out

On the next page you can use my How Much Home Can I Afford Calculator to see exactly how much you can afford.