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How to Figure Out How Much You Can Afford

"Play around with calculators to figure out what sort of mortgage amount is affordable under your budget," Mechem said. "They're not going to be accurate down to the individual dollar amount, but they will give you a good ballpark figure of what a loan would cost on a monthly basis."

Also factor in whether that monthly payment is going to change over time, said Frank Quesada, homeownership specialist at the D.C. nonprofit group NeighborWorks America. Adjustable-rate mortgages start with low rates that can later spike, sometimes doubling a monthly payment.

"Borrowers need to feel comfortable that they can handle an increase," Quesada said. They should know when their loan adjusts and what the maximum adjustment is.

The Fed's online "Consumer Handbook on Adjustable-Rate Mortgages" includes a worksheet to help borrowers determine whether they should get that type of loan. The Fed advises borrowers to ask themselves: Is my income enough, or likely to rise enough, to cover higher payments? Will I be taking on other sizable debts, such as school tuition? Do I plan to sell before the rate adjusts?

Don't make any decisions before talking to professionals, though. Shop around for the best rate. Talk to many lenders and mortgage brokers, "then make sure you're comparing like mortgage products -- a 30-year, fixed-rate loan to a 30-year, fixed-rate loan," Mechem said.

Also look into whether the taxes and insurance are built into the loan quote, Mechem said. "Make sure you're not comparing a quote that includes taxes and insurance to a quote that does not."

It's a rare person who can make a sensible mortgage decision alone. Sorting through the options can be cumbersome and overwhelming. If you're not getting the answers you need, keep digging. Consider seeking advice from a HUD-approved housing counseling group listed at http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.

These counseling services are not just for low-income first-time home buyers, and they come at little if any cost to the consumer, who may have to pay the cost of a credit report, said Quesada of NeighborWorks.


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