Are you planning to buy your first house and don’t know what price range to search for? Or are you only curious about how much is your price-to-income guideline? Well, this was the main questions the study of Hosing Markets and Finance made by the American Enterprise Institute’s Center (A.E.I.) was trying to solve.

If you were trying to find a magical equation that gave you the specific amount you can spend on buying a new home, I am sorry to tell you that it is a bit more difficult than that.

There is no equation that transcends over time. Years ago, people used to think that you could afford to buy a house that costs twice your annual income. This means, that if John gain $70,000 per year, he could start filtering the price range to a maximum of $140,000. Later on, the proportion was 3 times the yearly income. But what about now?

The study made by A.E.I. took 543,000 first-time-buyers and examined their income, house price and size in SqFt of the unit purchased. They noticed that 90% of these buyers asked for a loan. In average, the price-to-income of the people examined was 3.3. This means that if John was trying to buy a house today, he could increase the price filter to $231,000!

But why is John able to increase his expense in more than $90,000? Mainly because the financing options offered to purchase a home, are way more flexible than before. For instance, the debt-to-income ratio (DTIs) can nowadays go up to 50%, with no down payment!

However, do not start to calculate your price-to-income yet… The researchers made clear that this shouldn’t be a magic rule to everyone!

Loans don’t only depend on the credit score and income that you have. They also are subject to evaluation on previous debts. I means that if you have a student’s unpaid loan, the bank won’t let you qualify to a high loan amount.

Another variable to take into account is the location where you are planning to buy. The study showed that ratios ranged from 2.3 times the income, in Pittsburgh, Pennsylvania, to 5 times in San Jose, California. Miami, for instance, showed a 3.5 price-to-income for first-time-buyers.

So if you are planning to buy a house, do not just multiply your income by 3.3… try to understand your financial background and what would be the best price for you!