How much should your mortgage be relative to income? (insurance, credit card, financial)

[evilnewbie]

I have heard that your mortgage payment should be no more than 30% of your AFTER tax income... is this a good value?

[ShannonMilligan]

Originally Posted by evilnewbie

I have heard that your mortgage payment should be no more than 30% of your AFTER tax income... is this a good value?

I read about 28%, so 30% probably is good.

[k374]

PITI+HOA should be less than 28% or less of your gross income, not net... ideally 25%.
PITI+HOA combined with all your other debt should not exceed 36% of your gross income and ideally 32% or less.

I would go with 25% front-end ratio and 32% back-end ratio to comfortably afford a home. That gives you a good financial cushion for everything else that comes up in life!

[Silverfall]

I agree with K374 that your total debt (ie mortgage payment with taxes and insurance, dues, school loans, car payments, etc) should not exceed around 35% of your gross income. Ideally it should be less than that.

[PotterGeek]

I go by the net income, not gross. I don't see alot of my gross income, what I see is the net. That's the "real" money you have to live on.

If we went by "gross" income, we would be completely housebroke. And the ONLY debt we have is a car payment of $353.00 a month. No credit cards, no lines of credit, no nothing. But we do have daycare costs, so it depends on if you have kids and your lifestyle.

Don't overextend when you don't have to. Your house should serve you, you shouldn't have to serve your house!

[Silverfall]

Originally Posted by leavingbyron

If we went by "gross" income, we would be completely housebroke. And the ONLY debt we have is a car payment of $353.00 a month. No credit cards, no lines of credit, no nothing. But we do have daycare costs, so it depends on if you have kids and your lifestyle.

Don't overextend when you don't have to. Your house should serve you, you shouldn't have to serve your house!

I agree that daycare costs should be considered. That rule of thumb with "debt" is to factor in any regular payments that you make to something. So if you pay for private school/preschool/daycare for your kids, you'd want to factor that it and count it in your debt ratio.

[PotterGeek]

I agree that daycare costs should be considered. That rule of thumb with "debt" is to factor in any regular payments that you make to something. So if you pay for private school/preschool/daycare for your kids, you'd want to factor that it and count it in your debt ratio.

That's right.
When speaking with lenders sometimes they don't take into account what does not "show up" as obligated debt on your credit report. I'd be leary of anyone telling me I could afford a price that I knew I couldn't.

You should figure up what your bills average in a month's time (including utilities, etc) and work your way backward to see what's left over (don't forget to put away some for savings, groceries, and other expenditures) and with what's left over will give you a better idea of what you can comfortably (and realistically) afford.

[crazyma]

I don't know the percentages, but when we qualified for where we are now we could have looked up to near 400K for a house...on one income.
We laughed ourselves silly over that. Yeah right, not that stupid! Nice try Mr. mortgage man. Try under 200K...and we should have gone lower.
I will never understand why people insist on shopping at the top of what they qualify for! Who you trying to impress?!

[NYSinger]

I've been wondering about this myself.

Carmen Wong Ulrich from www.cnbc.com says, "Remember: Don’t buy too much house! Make sure your mortgage payment, taxes and insurance are around 30% or less of your take-home monthly income—more than that and you won't have enough wiggle room for monthly expenses plus saving, getting rid of debt and investing."

[acegolfer]

30% to your net income is a sound advice.

What's your mortgage pmt (Principal+Interest)/net income ratio?

Mine is 27%.