FAYETTEVILLE, Ark. — High priced homes with fancy facades are nothing new to affluent Benton County, Ark., which is home to the headquarters of some of the country’s largest companies. But what might come as a surprise is that some of these homeowners are living in these quasi-mansions without any substantial furnishings.

“These homes have great curb appeal, but a small number of their owners are sleeping on futons and eating off of TV trays because they can’t afford to furnish them,” said William Bailey, a consumer finance expert at the University of Arkansas. He works closely with consumer credit counselors in northwest Arkansas who are familiar with these cases.

Unfurnished upscale homes are one result of a common trend that is a chief contributor to the mortgage meltdown crisis sweeping the United States: homebuyers taking on too much mortgage debt for homes they can’t afford, according to Bailey, an associate professor in the School of Human Environmental Sciences.

“Buying a home is a risky process, but because it is our single largest lifetime investment, many people see it as the only way to build equity in their lives and create an asset of value,” Bailey said. “And it’s been pushed so much on us as an important value that it’s very hard not to buy.”

Bailey says potential buyers, no matter how eager they are to purchase a home, need to follow five general guidelines when deciding how much house to buy: 1) Limit the total mortgage loan amount; 2) Limit the amount spent on total house-related expenses per month; 3) Walk away from real estate agents who disregard your best interests; 4) Know when to employ a real estate broker; 5) Thoroughly understand the terms of your mortgage before you agree to it.

Regardless of how much a financial company is willing to lend, the maximum amount consumers should borrow for a home is three times their gross annual income, according to Bailey. For example someone who grosses $50,000 a year should borrow a maximum of $150,000 to purchase a home.

Limiting the loan amount will help borrowers keep monthly house-related expenses at a manageable level, which will greatly reduce the chances of foreclosure or late mortgage payments should the consumer experience a change in income or other financial hardship.

“In general, if your house payment is more than 28 percent of your gross monthly income, you’re already pushing the maximum limit the average family can pay,” Bailey warned. “Now that’s just the house payment, which includes principal, interest, taxes and insurance. You’re also going to have utilities, repairs and other associated costs.

“The average person who is moderately successful and can keep their house probably spends about 35 percent of their gross monthly income on total house-related expenses, but if you’re paying more than 30 percent of your monthly gross income just on a house payment, you’re borderline to be successful because historically that’s where foreclosures begin their classic climb.”

For instance, a family that grosses $3,000 a month should spend no more than $840 a month on the mortgage payment and $1,050 on total expenses, including repairs, utilities and maintenance.

When searching for a house to buy, consumers should ditch real estate agents who show them houses that are more expensive than three times their gross annual income.

“Remember the agent is working for the seller not the buyer,” Bailey said. “It’s like when you go to a car dealership to buy the base model, but the first thing the salesman shows you is a tricked out model. You need to say 'no’ in those types of situations.”

Bailey says buyers looking for real estate of significant value should seek the resources of a real estate broker as opposed to a real estate agent.

“There are a few real estate brokers out there, very few, who are legally bound to be the buyer’s spokesperson,” Bailey explained. “They are intermediaries between the consumer and the agent and the seller. It adds a little bit of cost upfront, but in the long run they’ll save the buyer money because it’s their job to negotiate the best price and the best deal.

“Most people are not very good negotiators. We’re not willing to walk away from a bad deal because at a certain point, most of us get so emotionally attached to a certain property that we won’t get up and walk away, but we should.”

Once consumers have found a house that is in their price range, they need to be smart about the type of mortgage they get, according to Bailey.

“I think you should have a down payment so you have a sense of investment,” he said. “I think you should certainly go with a fixed rate, and read the fine print. If you don’t want to look at all those pages, it’s a good idea to have a lawyer look at it, someone who specializes in real estate or lending law. It will cost you some money, but it may save you a lot in the future.”

The School of Human Environmental Sciences resides in the Dale Bumpers College of Agricultural, Food and Life Sciences.