I've heard you say that your mortgage payment shouldn't be more than 25 percent of your take-home pay. Does this figure include taxes and insurance, or just principal and interest?
That figure includes taxes and insurance. Just remember, the whole idea is to make sure your house payment is manageable. You don't want to have so much money going toward your mortgage every month that you can't enjoy life or take care of your other financial responsibilities.
I figured out a long time ago that I've got more money when I don't have debt. It's a pretty simple formula, isn't it? If you want to build wealth, you have to get out of the payment business. I don't beat people up for getting a 15-year, fixed-rate mortgage, but you don't want all of your income going toward your house payment, either. If half of what you make every month goes straight to the bank, you'll have less money for other stuff. Plus, after a while that great house will stop looking so great. It'll be a chain around your neck instead of a place you love to call home.
Don't try to figure out how much debt you can get into. Instead, figure out how much debt you can get out of!