How much of my income should be spent on a home?

When you borrow money to buy a home, lenders want to be sure you make enough money to pay back your loan. Most lenders look at your debt-to-income ratio. Your loan and other home-related expenses should not exceed 28 percent of your income. Your total debt, which includes car payments and student loans, should not exceed 36 percent of your income.

If your mortgage and home-related bills are too high, you may wind up as “house poor” which means you have little money left for your other expenses. Your bank may agree to give you a mortgage because lending standards have been relaxed, but that doesn’t mean you can truly afford it. Once you’re working, you shouldn’t count on receiving pay raises that will help your home become affordable. Those pay increases may be needed to pay your other expenses, home related or otherwise.

Should I buy a home if I’m not sure where my career will take me?

Because there are many up-front expenses incurred when buying a home, you may be better off renting if you expect to leave the area in five years or less. You can’t bank on housing prices escalating dramatically during a relatively short time frame.

Am I better off buying a home or some other investment?

There is no one-size-fits-all answer to this question. When you buy a home, you’re probably looking at it as more than an investment. Aside from its investment potential, you believe it will enhance your lifestyle and quality of life. If you’ve lived in a dorm room or a building owned by someone else for many years, the prospect of owning a place you can call your own is quite appealing.