In the current economic climate, many people are keeping a close eye on their budgets. But one area of particular focus is the one that may have caused this financial crisis in the first place: housing.

Some people have overextended their finances on home purchases and now are in monetary straits. By properly evaluating their purchasing ability, home buyers can avoid headaches in the future.

“Typically, you don’t want to be over 35 to 38 percent of your gross income to be marked for your total housing expense,” says Chris Growe, mortgage analyst for St. Louis-based LSI Mortgage. “This includes principal, interest, taxes, insurance and any homeowners’ dues you may have.”

Though this is the standard percentage accepted throughout the industry, Growe feels that it is misleading to many people and contributes to people getting in over their heads.

“Personally I think it should be 28 to 30 percent (of the gross income),” Growe says. “In the end, if we’re talking about a husband, a wife with a kid or two, you don’t want to have half of what you bring home going to housing, just because the banks qualified you off of your gross income.”

By calculating housing budget off of gross, rather than net, income, many home buyers are purchasing houses out of their price range, Growe says.

“People are living outside of their means and wanting more than they need,” Growe says. “Most people want to push blame for the financial crisis on the banks and lenders, but everyone, including the consumers, is involved in the decision-making process.”

It’s not just home buyers who are overextending their budgets on housing expenses either, Growe says.

“It should hold true no matter what, whether you own or rent,” he says. “You want a nice place to live, but you don’t want to have putting the roof over your head being the only thing you can afford.”

Many renters echo this sentiment. Lawrence resident Brian Jordan allots 30 percent of his income as a housing allowance, a figure that he feels is manageable.

“Cost has a lot to do with where I live in Lawrence,” Jordan says. “It’s affordable for what my job is, and it’s in an area that’s not real expensive.”

Jordan hopes to buy a home someday in the future. But at the moment, he feels renting is the best option for him.

“The way the economy is right now, it’s not really realistic to buy a home,” he says. “I need to work and get my savings built up.”

This is something that many potential buyers are concerned about, especially with the advent of the housing crisis.

“In today’s underwriting world, the minimum down payment as of January 1, 2009, has gone to 3.5 percent of a purchase price, and that has to be from the borrower themselves,” Growe says. “And of course, Fannie Mae and Freddie Mac require 10 percent down up front.”

This means that the money cannot be a gift, and it must be seasoned, meaning it has been in a savings account for 45 to 60 days, Growe says. By utilizing these strategies, the lending companies hope to prevent home buyers from overextending themselves and defaulting on their mortgages.

But what about those people who have already overextended themselves? Growe says there is one simple strategy to get back on track.

“Start paying off any other debts you have, starting with revolving debts like credit cards,” he says. “The strategy most people use is to start small and pay off little miscellaneous debts as soon as you can. That’s the easiest way to get somewhere. Tackle the small ones first and you can feel mentally that you’re getting somewhere.”