The mortgage industry typically uses gross when determining if you can "afford" a mortgage. This should include all of PITI (principal, interest, taxes, and insurance). But you should also include other debt payments in the 35% calculation (car, credit card, etc).
That being said, only you can decide what you can afford. Just because the mortgage industry says you can afford it doesn't mean that you can. Personally, I would create a detailed budget that includes savings, fun money, etc. Based on that, you can determine what YOU think you can afford. Then, pretend you have that mortgage payment for 3 months by saving it. If you feel comfortable with the mortgage payment after 3 months, you can afford it.
|