3) A payment calculated only on salary Both of us do freelance, but neither of us is willing to count on it. If we have extra . . . well, I'll just get my new kitchen all that much faster.

4) PITI of no more than 25% of take-home PITI stands for Principal, Interest, Taxes and Insurance. For those of you who have not yet bought a home, that's the payment that you send to the bank every month--the mortgage payment, plus taxes and homeowner's insurance, which they hold in escrow for you. We wanted to keep it on the low end of what most people pay, for lots of reasons:

We want to be able to make a substantial extra payment each month

We want room in our budget for a full 15-20% savings rate

We want to insure against income loss; if something happens to one of us, the other person should be able to cover the mortgage

We can always spend surplus cash; we cannot spend surplus house without selling the whole damn thing, or taking out a home equity line that puts us at risk of losing the whole damn thing.



5) Reasonable relationship of house to income A mortgage of 2.5 times annual income was the absolute cap, and we wanted to stay well below that, for the reasons I've already enumerated.

6) Fixed rate mortgage We thought hard about an ARM. It's quite possible that it would have been a better fit for us, since we plan to be pretty aggressive about paying it down; with a seven year ARM, by the time it reset, we might have a substantially lower payment.

On the other hand, the rates offered by our credit unions on longer-term ARMs were not that much better than on conventional mortgages, and interest rates don't have much place to go but up. We opted to pay a little extra for the insurance.

7) The house had to work, financially, without the tax deduction Given that we do freelance, we already itemize, so we're glad to take the home-interest deduction. But we were not interested in a "stretch" that was only really feasible with a big tax deduction; we wanted a payment that was the same as, or less than, the rent we were already paying.

Once we'd hashed all this out, I called the credit union to apply for a loan.

Peter was sitting in the living room while I paced up and down (I pace while I talk on the phone) feeding name, age, income, Social Security numbers, work history and so forth to the nice lady in Florida who took the application.

At the end, she sucked in her breath and said, "Well, based on this, we couldn't loan you more than [figure equal to approximately 5 times the stated income]." I am ashamed to admit that I reacted with an indelicate expletive. Peter looked up anxiously.

"Won't we be able to buy the house?" he said.

"We can buy the house," I told him. "In fact, I think we can buy two."

It's frightening to know that the above calculations, which don't seem too stringent, are far, far tighter than those used by our relatively sober credit union. We McSudermans may be a fiscally conservative people, but we Americans clearly still aren't.

