Put 20 percent down, so you have less of a chance of owing more than your home is worth if prices fall again. Get a fixed-rate mortgage, so the biggest part of your monthly housing bill remains stable.Read the whole thing.
If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.
That said, if you end up with an adjustable-rate loan, banks may not be concerned with whether you’ll be able to afford the maximum possible payment when the interest rate adjusts in five or seven years. But you should be worried about it.
Another alternative for first time home buyers that I've long advocated is simply to rent. I think too many people jump into too much house too soon. Renting something smaller than you want to eventually buy gives you a chance to save for that 20% down payment, keep your commuting time low, and a whole host of other benefits -- financial and otherwise.