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Old 01-27-2008, 11:02 AM
 
181 posts, read 865,118 times
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The formula you usually hear is that you should buy at about 2 1/2 times your annual income. However, it seems that the formula changes (i.e. increases) for higher-income earners. I've noticed this when looking at sites online that tell you how much you can afford when home-shopping. It seems that the formula increase to about 3 times annual income for higher-income earners. This seems to make sense given the fact that while your housing costs are higher with this formula, a lot of your other expenses remain the same, making the % of your income that you spend on your house payment virtually the same it would be if you made less but stuck to the 2 1/2 times formula. For example, even if your house payment increases, you aren't spending more on car insurance, groceries, going out to eat, etc. than you would be if you purchased a home using the 2 1/2 times formula. Is this correct?
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Old 01-27-2008, 12:31 PM
 
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You need to take into account the amount of money someone is putting down on a house too. Big savers would have a better down payment and therefore could conceivably afford more house than someone with a higher income but less of a down payment. People with little savings are obviously going to have a higher monthly mortgage and not be able to afford as much house.
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Old 01-28-2008, 07:03 AM
 
Location: Connecticut
235 posts, read 780,312 times
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Quote:
Originally Posted by CrissCT View Post
You need to take into account the amount of money someone is putting down on a house too. Big savers would have a better down payment and therefore could conceivably afford more house than someone with a higher income but less of a down payment. People with little savings are obviously going to have a higher monthly mortgage and not be able to afford as much house.
Absolutely... what we gathered from our extensive research was that you could consider going up to 3 times your annual income provided you were making a down payment of at least 20%
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Old 01-28-2008, 07:45 AM
 
Location: Connecticut
34,636 posts, read 56,378,147 times
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The amount of home you can afford is not based on a multiplier times your income. There are too many variables involved for it to be that simple. generally banks will allow you to dedicate up to 28% of your income toward housing costs. This includes mortgage, taxes, insurance and common charges (if any). Some mortgage companies will allow up to 33% of your income. You would have to sit down and figure all this out. Maybe go into a bank and talk to a mortgage expert there. Jay
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Old 01-28-2008, 09:30 PM
 
Location: Milford
46 posts, read 179,792 times
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generally banks will allow you to dedicate up to 28% of your income toward housing costs. This includes mortgage, taxes, insurance and common charges (if any). Some mortgage companies will allow up to 33% of your income. You would have to sit down and figure all this out. Maybe go into a bank and talk to a mortgage expert there. Jay>>>>>

Unfortunantly Fannie Mae allows a debt to income ratio of 65%, which is way to high and is a part of the foreclosure issue.
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