Dear John: I am in the process of purchasing a home and I am currently going back and forth on the contract. I have seen my rate go from 4.25 to 4.75 in less than two weeks.

I would imagine December’s horrible employment news will send the rates down, but who knows when I will have the option to lock in my rate. My contract might be signed by the end of next week.

Where do you think rates will be heading over the next two months?.

Thanks so much and I hope you reply. S.S.

Dear S.S. Look, here’s the problem.

The economic news over the next few months is not likely to be any better than it is now. Things could even get worse. That means interest rates — which move in the opposite direction of economic activity — should, logically, go down.

But there is a whole lot more going on here.

Our situation with China, for one thing, is far more important than whether the economy looks dippy or stronger. The Chinese, as you know, own a boatload of US government debt. And because of Federal Reserve Chairman Ben Bernanke’s insistence on quantitative easing — also known as printing extra money that’ll allow Washington to buy its own bonds — our country’s relationship with China isn’t very good now.

Should China decide to make trouble, then rates could shoot up very quickly. That’s part of what you’ve been seeing over the past few weeks, when the rate on your mortgage has jumped.

So, when you get a chance to lock in your rate, your choice will be this: should you wait for slightly lower rates, while risking the chance that rates could zoom because of international distractions?

Only you can decide.

Dear John, I am wondering why banks go by annual gross income or annual gross monthly income when a person’s net income really determines how much of a house they can afford.

My wife and I make a good gross income but when you take out deductions it’s half our gross salary. We have been looking for a one-family house for two years and can’t afford anything out there.

When we do the math, unless it costs $200,000 — which you know doesn’t exist in the five boroughs of New York City — we can’t afford anything. I hope house prices go down further. Thanks. A.A.

Dear A.A. Let me tell you a story. When my wife and I bought our first house back in the Eighties we sweated not being able to afford the mortgage. The banker took out his pencil, made sounds like he was in agony and finally said we had just qualified — by the skin of our teeth.

Then interest rates started climbing. At the beginning we thought the loan would be 9 percent. When we finally closed it was 12 percent and going to 15 percent the next day.

I said to the banker who barely qualified us: “Can we still afford the house?”

“Yeah, don’t worry,” he said quite casually.

My point: the banks can do anything they want. And that’s the problem. They made loans without abiding by many rules for years.

Mike Fratantoni, the Mortgage Banker’s Association’s vice president of research and economics, says the reason gross income is used is because homeowners can deduct their mortgage payments from their taxes. “Pre-tax income is the best estimate of borrower capacity for servicing debt,” said Fratantoni.

What about home prices falling? I’m not against that happening, although it will be devastating for the US. But, heck, it’s every person for himself. I hope you find a $150,000 dream home and secure an incredibly low interest rate.

Take care and happy hunting.

Send your questions to Dear John, The N.Y. Post, 1211 Ave. of the Americas, N.Y., N.Y., 10036, or john.crudele@nypost.com.