What % of your gross income should be budgeted for housing (mortgage + taxes)?
by Mortgage Rates on Thursday, September 16th, 2010 | 5 Comments
-
Mortgage Info
-
Updates
-
Useful Links
-
-
Tags
2010 About article Auctions bank banks best Business buyers change Credit Debt Equity Financial First fixed Foreclosure From good Government Help Home house Housing interest Loan Loans Market more Mortgage Mortgages Need News options qualify Rate Rates refi refinance Refinancing should this Time variable would-
Meta
mortgage insurance and taxes in an escrow, no more than 28% total loans no more than 36% that includes all home mortgage costs, car loans, student loans, and credit cards.
thats how you know what you can afford, and lenders will look at your debt to income ratio before they tell you what your highest amount you can afford is.
When I purchased my first home I was required to take a first time home buyers course and they pointed out that between 30-35% of your income should be towards your mortgage
The standard for qualifying for a mortgage is that you need to make enough so that after all of your fixed debt, your mortgage takes up no more than 28% of monthly take home income and all debt (loans + credit cards + mortgage) take up no more than 36% of take home income.
Although this is the standard, it will likely make you feel strapped with nothing extra to buy new furniture, fix something that breaks, or improve the home in any way. Mortgage lending is a business. They are in it to make money. The way they make money is on interest, so they are going to try and get you into the biggest mortgage they can.
The old adage used to be “buy as much house as you can afford.” More reasonable financially is to buy as little house as you feel comfortable.
Calculate the standard percentages for you, then back them off until you get a comfortable number. Keep in mind that when you get a mortgage, the loan calculations are on principle and interest, but you will also need to pay tax & insurance. Depending upon the area you live in, this could tack on to your payment from $300 a month on up. (for example, my aunt lives in a modest home in Florida. Flood insurance is unreasonably high there now. She’s paying $6000 a year to cover her house. That’s $500 more per month. That does not include homeowners insurance. Her insurance payment is almost as much as her mortgage.)
One rule I’ve followed is to buy no more home than 2.5 times your annual gross income (40K Gross=100K house). Unless you have a lot of other debt this formula will usually keep you out of trouble but may not bring you into a realistic price point for a home in your area.
30% of gross for housing (mortgage, property taxes, and insurance). 38% of gross for housing + car payment + monthly credit card payment. A bank can give you the details to see if you prequalify for a mortgage and tell you how much house you can safely afford.