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By ELAINE SCOTT
Extension Family Finance Specialist
When you start looking for a new house you’ll probably hear many rules of thumb about how much house you can afford. Some common ones are: Your house should cost no more than 2.5 times your annual income. Total housing costs should not exceed 25 percent of your gross income. Don’t spend more than 35 percent of your take home pay on housing expenses.
The major problem with these rules of thumb is that they don’t work in today’s market. Interest rates fluctuate, housing prices have gone up tremendously since the * 1970’s and other housing costs such as insurance and property tax also have increased dramatically.
The median price of homes in the South in 1987 was $80,400. Some areas in Virginia have a median housing price of $159,000. The rules of thumb say you would need an an
89.7%