CAUTION: Robert Kiyosaki (author of Rich Dad Poor Dad) says YOUR house, the house you live in, is NOT an 'ASSET' because it does not produce income. I completely agree with him. If it's such a great 'asset', how come there're so many foreclosures. Ask any foreclosed person how much their 'asset' was good for. Something that takes money OUT of your pocket and could financially ruin you ... is NOT what I would call an asset. It costs you money, every month. It's a monthly liability.

Rental properties are assets. Businesses are assets. Your home is an expense. But I still recomend buying, instead of renting.

How much house you can buy depends on how much money you have for down payment and how much you can borrow. How much you can borrow depends on your credit score and what type of loan you get.

There's a lot of talk today about bad ARM (Adjustable Rate Mortgages) loans. Truth is, the ARM loans aren't bad. It's the mis-use of ARM loans that's causing the trouble. Let me explain; ARM loans start with a low intrest rate that increases over time. The advantage to the low interest rate is that in the begining of the loan; you pay less interest on the total borrowed money. Which is supposed to allow you to make a larger payment on the balance of the loan. Thereby, paying the balance down quicker.

The problem came in where the realestate sales people and the loan origination people used this to tell you, that with the smaller interest, you could afford to borrow more money, to buy a larger house. You could have a larger house with an ARM loan, than with a Fixed rate loan. A house that you wouldn't be able to afford on a fixed rate loan. Why would they do this? Because the realestate person gets a larger commission when you buy a larger house. And the loan officer gets a larger commission when you borrow more money. They're both trying to get a larger commission for themselves by convincing you to buy a larger house. Besides, if you end up filing bankruptcy, they won't be financially hurt. In fact, when you can no longer afford the house, it gives them another business oportunity to make another commission.

The ARM mortgages were meant for RE-financing. Not initial financing. And certainly not so you could afford a larger house.

So, when BUYING a house; there's only 1 type of loan you should even consider ... FIXED rate. A year or so after you've bought the house; then you can consider RE-financing to an ARM to save some interest money.

Now that you're getting a Fixed rate loan; how long should you borrow for? That's easy ... 30 years. Don't go for the 40 year loans, it doesn't give you that much more borrowing power. It's not worth the trade. Also don't go for less than 30 years. If you want to pay your loan off early ... fine. In fact, we encourage you to do that. Just don't COMMIT yourself to the larger payment of a 20 year loan. You never know when your finances may change and the smaller payment of the 30 year loan could mean the difference between keeping the house, or selling. If you want to pay your loan in less time ... just make larger payments.

By the way, the same goes for bi-weekly payments. If you want to make them ... fine. Just don't COMMIT to them.

Remember, Fixed rate, 30 years, monthly payments.

Realestate agents have a formula they use to calculate what you can afford. These formulas simply don't work. For example, a person making $2 Million a year should be able to spend 50% of their income on a house payment with no trouble, and a person making $20 Thousand a year would have trouble spending 5% on a house payment.

Remember, you're the person making the payments. It's really up to you to know how much you can afford to pay each month. If you don't currently have a car payment, plan as if you did have one. Are you planning to drive the same car for the next 30 years? Probably not. So plan for it now. Also remember that ownership comes with maintenance. All the repairs will be your financial responsibility. There will be no Landlord to run to for AC, or plumbing, repairs. You'll also have to take care of the yard either yourself or pay someone else. Plan these and other expenses into your budget.

You should know how much you can afford to pay each month for your housing. If you don't know ... find out. The best way to find out is to open a new savings (or checking) account that will be your new house payment. Whatever payment you think you can afford ... make it to that new account and make your current rent or mortgage payment from the money in that account. If you don't have a car payment, add that to your payment. PRETEND that you've already bought the new home and car, and try to live with your decisions for a couple months.

If life is too tight, you can cut your payments back a little. (something you can't do once commited) If life is just fine, try increasing your payment a little. The idea is to find your maximum comfortable payments (house and car) BEFORE you commit to them.

Once you've found your comfortable payment level; you're now ready to find that new home. Don't let anyone talk you into larger payments. Remember, they aren't making the payments, you are. They also won't help you financially if you buy more than you can afford.

Now that you know how much you can afford for a monthly payment, and what type of loan you will be getting; this information can be plugged into a financial calculator to tell you how much you can borrow. (a real estate agent or any banker can do this also) Add any down payment money you have and you should know the MOST you can spend on a house.

But that doesn't mean you SHOULD spend that much on a house. Remember, we're talking about YOUR finances here. Do you like to take vacations? Spending money on monthly payments will cut into the number, quality, or length of vacations. Spending money on monthly payments may mean less eating out, less trips to the theatre, or driving 10 year old cars. You'll never be able to keep up with the Jones's. They're just too rich. So don't try. Instead, let the Jones's have their credit cards with a $30,000 balance. You'll enjoy life more and vacations better when you're paying cash.

Buy only as much as you need. (or plan to need in the near future) Don't let the sales people convince you to buy more so they can have a larger commission paycheck.