Generally, housing is a family's largest budget item, and often causes the largest financial problems. The reason is uncomplicated -- many families buy or rent houses they can't afford.

However, there is a relatively simple way to determine if a house -- whether it's being bought or rented -- is affordable for an individual or family. Here's how to do it: never exceed 40 percent of your net spendable income for housing.

Net-spendable income is the amount you have available after your taxes and tithe. Sadly, even those who try to abide by the 40 percent principle will use their gross income as a basis for determining their housing budget, and that produces big-time problems.

Items that must be included when determining the amount needed for housing payments are: mortgage, taxes, insurance, utilities, phone and maintenance. To repeat: The total of these payments should not exceed 40 percent of your net-spendable income.

If you are thinking of purchasing a house, consider the following suggestions:

•  Don't finance a second mortgage for a down payment and don't finance closing costs.
• If trading up, make sure it's a house you really need and not one you simply desire.
• Pay off the house as soon as possible, and avoid second mortgages and home equity loans.

There are a number of ways to buy a home:

Cash: If you have the cash to buy a small home, improve it and then sell it for a profit. Then, follow this process with a larger home until you have the one you want -- debt free.

Institutional Loans: Banks, savings and loans, credit unions and mortgage companies issue loans. Shop around and consider the following variables:

• Down payment. Larger down payments mean smaller monthly payments.
• Closing costs. These are fees that must be paid up front, or rolled into the loan, that can amount to several thousand dollars.
• Fixed-rate mortgages. Using this type of mortgage, you'll know the exact interest rates and monthly payments, and whether it will fit your budget.
• Adjustable-rate mortgages (ARM). Twenty percent of home loans last year were ARMs, with low beginning rates that increase after two or more years. The dollar amount of new ARM loans has jumped from $500 billion annually in the 1990s to $3 trillion in 2006. Fluctuating ARM interest makes it extremely important to know how high the interest could go.

Assumable Mortgages: This might benefit you as a buyer if the interest and monthly payments are lower than current rates. However, the seller may require a written liability release from the buyer on an assumable mortgage.

Government Financing: Subsidized VA, FHA and state-bonded government loans may be available through local lending institutions, some requiring little or no down payment.

Seller Financing: Some sellers will finance a house for the buyer, who usually gets lower than current interest rates, and saves on closing costs.

Equity Sharing: Buyers that need help for a down payment may find an investor to loan a portion or all of the funds. The agreement defines the time you must live in the house before you can sell, and, if you sell, the amount of equity to be paid to the investor.

Assisted Financing: Parents often help children with down payments to buy a home. With joint ownership, parents make payments then rent the house to the children for an amount equal to the monthly house payments.

Everyone needs a place to live, but we can't always afford the dwelling that we might like.

Because this is such an important financial matter, it certainly needs to be a matter of prayer and careful consideration. Then, if after prayer, you decide that buying a house is in your family's best interests and you've settled on a home, be sure to carefully calculate no more than 40 percent of your net spendable income.

Once again, don't forget all of the items noted above that must be included in housing costs, because a house costs much more than just the amount of monthly rent or a mortgage payment.

Crown Financial Ministries provides free online calculators so you can determine the cost of a house for you. Visit www.crown.org and you'll find a "Rent vs. Buy Calculator" that will help you compare the costs of renting to the costs of buying a home. Then, you'll know just how much house you can afford."

(c) 2007 Baptist Press. All rights reserved. Used with permission.