Harry Gross: Good salaries, some savings: What house can they afford?

Dear Harry: My girlfriend and I are looking to purchase our first home. We have a combined annual income of $85,000 and a combined savings of about $30,000. We both live with our parents, and we spend very little on monthly expenses. We have pretty good credit scores. Mine is 740 and hers is 680. Considering mortgage payments, homeowner's insurance, utilities, real-estate taxes and maintenance, what price range should we consider? What about the amount of our down payment?

What Harry says: I'd like you to consider the possibility of renting for a year or so before you buy a house. The two of you have not lived together so you are not certain how that will work out, particularly because you have no legal ties to each other. A split of ownership is complicated in such a situation. But that's aside from your question.

My criterion for affordability is that you should not spend more than 28 percent of your income for the monthly costs of a home. This should cover the mortgage and related payments you mentioned. That puts the costs at $24,000 a year. Estimating the nonmortgage costs at $8,000, that leaves $16,000 for the mortgage. A 30-year fixed rate mortgage at 5 1/4 percent will give you a mortgage of approximately $241,000. FHA loans can require down payments of 3 1/2 percent of the home's value. That's way too low for my safety-conscious mind. I'd like you to stick to a figure of at least 15 percent. That will cut your purchase price down to about $200,000. If you can build your savings up a bit more (for a reserve), you can get the house with a very manageable mortgage of $170,000. There's one more consideration that too many homebuyers miss. That is that it is very difficult socially to move into a neighborhood that is a big stretch financially. There are too many areas where you won't be able to stay with your neighbors. It's exceptionally difficult when there are young children.

Write Harry Gross c/o the Daily News, 400 N. Broad St., Philadelphia, PA 19130. Harry urges all his readers to give blood - contact the American Red Cross at 800-GIVE LIFE.