Tip of the Week: How Much House? (5/22/00)

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	How Much House? Financial Tip of the Week by Deloitte & Touche OnLine May 22, 2000

One Realtor recommends the front end/back end method.

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First-time homebuyers can get nervous: How big a mortgage payment can they afford? One Realtor, Coldwell Banker, recommends the front end/back end method of determining an affordable mortgage payment.

First, the payment itself shouldn't take up more than 28 percent of the income of the household (the front end). Second, the total existing debt service -- such as credit card debt, car loans, student loans -- shouldn't be more than 8 percent.

So, if a household's monthly income is $4,000, the affordable mortgage payment is $1,120, provided debt takes up no more than $320 a month. If debt were to be $400 a month -- 10 percent of monthly income, rather than 8 percent -- the affordable mortgage amount would be reduced by two percentage points, to $1,040.