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Old 10-18-2010, 05:41 PM
 
133 posts, read 501,250 times
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Just wondering, since New jersey is so expensive, do most people here really go by the general rule of thumb that their mortgage should not exceed more than 28-36% of their monthly income? My mortgage is on the conservative end compared to my monthly income, but I have a friend who just bought a very expensive house and I know that house cost more than 3 times her salary(more like 4 times her salary). Sometimes I really wonder how some people I know can afford their big houses in New Jersey when they do not have an income to match.

So has anyone on here gone "over" that rule of thumb and had a mortgage more than maybe 36-40% of their monthly income and it's worked for them? -Just very curious. No judgements here, just wondering.
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Old 10-18-2010, 06:05 PM
pvs
 
1,845 posts, read 3,355,932 times
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Quote:
Originally Posted by Taliana View Post
Just wondering, since New jersey is so expensive, do most people here really go by the general rule of thumb that their mortgage should not exceed more than 28-36% of their monthly income? My mortgage is on the conservative end compared to my monthly income, but I have a friend who just bought a very expensive house and I know that house cost more than 3 times her salary(more like 4 times her salary). Sometimes I really wonder how some people I know can afford their big houses in New Jersey when they do not have an income to match.

So has anyone on here gone "over" that rule of thumb and had a mortgage more than maybe 36-40% of their monthly income and it's worked for them? -Just very curious. No judgements here, just wondering.
Depending on how much she had for a down payment, she might still be within the 28-36% bracket. Personally, as I look for a home, I am going to try to keep the monthly payments within the bracket (on the lower end, actually), but I also have over 100K saved up for the down payment. Soem folks have well over that amount, and it reduces the monthly payments a lot!
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Old 10-18-2010, 06:11 PM
 
Location: Montgomery County, PA
2,771 posts, read 6,256,731 times
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Quote:
Originally Posted by Taliana View Post
Just wondering, since New jersey is so expensive, do most people here really go by the general rule of thumb that their mortgage should not exceed more than 28-36% of their monthly income? My mortgage is on the conservative end compared to my monthly income, but I have a friend who just bought a very expensive house and I know that house cost more than 3 times her salary(more like 4 times her salary). Sometimes I really wonder how some people I know can afford their big houses in New Jersey when they do not have an income to match.

So has anyone on here gone "over" that rule of thumb and had a mortgage more than maybe 36-40% of their monthly income and it's worked for them? -Just very curious. No judgements here, just wondering.
You have two different metrics here -- multiple of salary, and percentage of monthly income.

Consider a household earning 100k (nice round number).

At 5% (some people have lower), 100k for down payment, 30k a year, 30% of household income, or 2500 a month buys you anywhere from 385k to 470k depending on property tax rate.

Another number: 2000/month, 2% effective property tax rate at 4% buys 385k.

So yes, it is possible to be around that 4x multiplier and still be at the lower end of these "percentage of income" guidelines.

By the way, just my opinion -- the 28% to 36% number as a percentage of before tax income excluding property taxes is already aggressive (for that family making 100k, it is likely to be over half their take home income), above that is financial suicide.

Most people buying in this market have to either stretch to the limits of their means or settle for much more modest housing options than their peers (e.g. those on similar incomes)

Edit: in NJ, it's important to take property taxes into account, because they are generally about 1.5-3% of the value of the house, or around 1/3 of your monthly payment. So that 28% or whatever should probably include property taxes and not just mortgage payment.

I'm not sure which guideline banks are using now, but I was pre-approved for some ridiculously large loans (I think the loan amount was over 5x my income) . Actually obtaining the mortgage commitment letter for that amount may have been a different matter. I can't say I had much interest in testing them on this point.

Last edited by elflord1973; 10-18-2010 at 06:28 PM..
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Old 10-19-2010, 04:30 AM
 
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How much house can you afford in New Jersey
We made a point to under-buy, so to speak, as we didn't want that much of our financial eggs to be in the real estate basket.

Really glad we did.
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Old 10-19-2010, 07:09 AM
 
Location: NJ
12,283 posts, read 35,584,422 times
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Never in 1,000,000 years would I buy a home 36-40% of gross salary ~ if that isn't a recipe for disaster, I don't know what is. My personal comfort zone is a *mortgage* (not house price) of no more than 2xs.
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Old 10-19-2010, 09:12 AM
 
14,780 posts, read 43,481,658 times
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When we were buying I had a goal of a mortgage payment (including all taxes/insurance) that would not exceed 30%. We ended up at 29%. The key for us was balancing needs/wants with cost. We picked an area that had good schools and low taxes and then shopped for a house that met all of our needs and had as many of our wants as possible.
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