AgentMortgage

How much house should I buy?

Interest-only loan may snag buyers in money trap

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"My wife and I are arguing about whether to buy the $150,000 house we set out to buy, or the upgraded version for $185,000 that she fell in love with. She argues that we can afford the more expensive house with an interest-only mortgage, and that appreciation in the area will make the more expensive house a better investment. I'm concerned about biting off more than we can chew, especially with interest rates heading up." This issue is emerging in many households these days because they have more leeway than they used to in how much they spend on a house. To be sure, lenders still apply maximum ratios of housing expense to income when they underwrite a loan. These ratios limit the mortgage payment, which in turn limits the loan amount, which in turn limits the house price. But these ratios are not nearly as rigid as they used to be, especially for borrowers with good credit. At the same time, the more widespread use of adjustable-rate mortgages (ARMs) with flexible payment arrangeme...