There’s little doubt that we’re borrowing more and there’s also little doubt that credit is one of the great conveniences of modern life. That said, like Goldilocks you want to borrow the amount that’s just right — and no more.
So what’s the right level of debt?
The loan qualification standards used by mortgage lenders are an important guideline. You can typically get that old standby — the fixed-rate, 30 year mortgage — if no more than 28 percent of your gross monthly income goes for mortgage principal and interest, property taxes and property insurance (PITI). In addition, as much as 36 percent of your gross monthly income can go to regular monthly costs — PITI plus car payments, credit card debt, school costs, etc. In addition, because they have more liberal qualification standards, you can often borrow more with other loan programs such as FHA, VA and adjustable-rate financing.
But no matter what type of mortgage financing you consider, the real question should be not how much can you borrow, but rather how much can you borrow comfortably. In other words, financial sanity counts....
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