The buying power affordability process starts something like this:
The mortgage professional will go through your monthly financials, starting with your income. Then he or she will go down your monthly installment payments on debt -- car loan, credit cards, student loans and any other mortgage or financed debt (not utilities, food or gas expenses, etc. -- unless, of course, you're paying for those items on a credit card).

Once he tabulates these numbers, he'll come up with a ratio -- how much monthly payment dollar against the level of income dollar. If you make $5,000 per month and your debt is $1,500, you would have a debt ratio of 30 percent (meaning 30 percent of your income goes toward monthly debt expenses).

Most loan programs will allow your monthly debt for a house to be at least 28 percent. When you add up all the other monthly payments, that ratio can rise to more than 36 percent without affecting your ability to borrow money. Non-traditionally, there are programs that lump all your debt into one lump sum number -- instead of a 28/36 program, they'll just say don't exceed 50 or 55 percent for everything. This gives the buyer a lot more flexibility when it comes to the cost of housing in an expensive area.

If you want to increase your buying power dramatically -- by almost 100 percent in some cases -- you should begin to look at non-traditional financing that includes lower, adjustable interest rates and even interest-only mortgage products.

To compare your buying power with these types of programs, you'll need to start with your budget. How much are you comfortable spending and what stays within the industry standard (for this demonstration only we'll use $1,000)?

Thus the stabilizing factor will be $1,000 for a principal and taxes payment, and the other numbers will be shifted.

A 30-year, Fixed-Rate Mortgage, @ 6.12 percent
$1,000 borrows $164,666.72

This is a popular loan program, because it allows the most amount of money to be borrowed with the most "stable" payment budgetable.

A 15-year, Fixed-Rate Mortgage, @5.47 percent
$1,000 borrows $122,625.30

As you can see, your buying power drops substantially, however, for the debt-adverse buyer, it eliminates the mortgage in half the time required by a 30-year program.

A 1-year Adjustable-Rate Mortgage (ARM), @3.74 percent
$1,000 borrows $216,193

Right now, this mortgage can really bump up your buying power, but you will lose the stability of the payment remaining the same year after year. The interest rate will adjust each year on the anniversary date of your mortgage.

A 5/1 Adjustable-Rate Mortgage Interest-Only Payment, @4.87 percent
$1,000 borrows $246,500

The interest-only loan means exactly that -- you're paying only interest on the $246,500 for the loan. Interest only loans are great financial tools. They've helped many borrowers qualify for their homes who may not have otherwise. There are many choices available with interest only loans, and an experienced loan consultant can help you decide if an interest only loan is right for you... and if it is, recommend the best one for you. To learn more about interest only loans, click here.