How much should one pay (in %age) for mortgage? (Fairfax: sale, rent)

[vauser]

I realize this is a generic question but assuming no debts and a small family, what would be a reasonable amount - in %age - to pay as mortgage?

For purposes of discussion, we can assume a $100K salary (Gross, before taxes).

I feel like a lot of people are living in homes much larger than I would expect, so want to do a reality check and see what folks think.

Thanks much!

[shamrock847]

It really depends...

I actually think any type of % guideline is pretty flawed because what really matters is your ability to pay your mortgage and your other bills. Some people making $100k might be maxed out with 20% of their income going to their mortgage, while others can comfortably pay 40%.

You mentioned no debts, but what about other "must pay" expenses such as child care or commuting? Do you have enough savings for an emergency like a lost job? Do you have stable employment (such as tenure) or are you in a high demand field where you could find something else that pays just as much easily if something happened to your job? Is your income likely to go up significantly in the near future (for example, you are a medical resident or a Supreme Court clerk)? Are both spouses working or is one spouse temporarily out of the workforce with small kids but planning and able to go back in a couple years? All of these type of factors might lead one family to be comfortable with a very different number than another family with the same income.

"Traditional" lending guidelines were 28% mortgage to income and 36% debt to income. Personally, I think these are a bit too conservative for some borrowers high income/high cost areas but that is another debate. There are options (like VA loans for those who qualify) which allow ratios over 40% in certain circumstances.

In this area, it would not be unusual to see someone making $100k able to afford a $500k house. Their monthly payment would be 30% of their income ($2500/mo) if they put 20% down and finance the rest at 4.5%, assuming about $500/mo for taxes and insurance.

[Lucky★]

There are tons of calculators online-

Financial Calculators on Yahoo! Personal Finance

[MrRational]

Originally Posted by vauser

I realize this is a generic question but assuming no debts and a small family, what would be a reasonable amount - in %age - to pay as mortgage?

As little as you can *possibly* get away with.

I feel like a lot of people are living in homes much larger than I would expect, so want to do a reality check and see what folks think.

Setting aside those who are drowning in debt while they put up a tough front...
not all income is limited to what their jobs earn them.

Family money in lumps used for big down payments or regularized gifts or periodic trust distributions...
are not uncommon in the nicer areas.

For purposes of discussion, we can assume a $100K salary (Gross, before taxes)...

The rule of thumb used to be no more than 1/3 of NET income.
But so many have such complicated payroll deductions now that is hard to stick with.

[CAVA1990]

I'd say 30% of gross is reasonable. That's what the government shoots for with the Making Home Affordable program.

[hilsmom]

The payment we are about to take on is 27% of net income. Although, we are hoping for a raise this year for my husband, so it should drop a little at that point.

We make slightly above $100K, and we tried to stay in the $450K range (we wound up purchasing just a small bit above that). We are able to use a VA Loan, which allows for slightly more flexible financing. We're only putting 10% down because we need some money for renovations/updates. We COULD dig up 20%, but why should we drain our savings when we also are getting a 4% interest rate and absolutely no PMI?

We've been incredibly lucky since almost none of our current home sale and purchase has been typical of the current market. Our TH sold in 3 days, we're walking away with a profit, etc., etc. The VA Loan has really been our ace in the hole.

[justtitans]

Originally Posted by shamrock847

It really depends...

I actually think any type of % guideline is pretty flawed because what really matters is your ability to pay your mortgage and your other bills. Some people making $100k might be maxed out with 20% of their income going to their mortgage, while others can comfortably pay 40%.

You mentioned no debts, but what about other "must pay" expenses such as child care or commuting? Do you have enough savings for an emergency like a lost job? Do you have stable employment (such as tenure) or are you in a high demand field where you could find something else that pays just as much easily if something happened to your job? Is your income likely to go up significantly in the near future (for example, you are a medical resident or a Supreme Court clerk)? Are both spouses working or is one spouse temporarily out of the workforce with small kids but planning and able to go back in a couple years? All of these type of factors might lead one family to be comfortable with a very different number than another family with the same income.

"Traditional" lending guidelines were 28% mortgage to income and 36% debt to income. Personally, I think these are a bit too conservative for some borrowers high income/high cost areas but that is another debate. There are options (like VA loans for those who qualify) which allow ratios over 40% in certain circumstances.

In this area, it would not be unusual to see someone making $100k able to afford a $500k house. Their monthly payment would be 30% of their income ($2500/mo) if they put 20% down and finance the rest at 4.5%, assuming about $500/mo for taxes and insurance.

I completely agree with this. What is a 'small' family? Knowing exactly how many kids and how old the kids plays a HUGE role in knowing your ability to pay your mortgage. Child care is some ways is like having a mortgage especially when you have multiple younger children. One other factor that weighs into this is how you handle your deduction on your taxes. Some people take out more and want the big check in April while others get all of their money upfront. Too many factors in this to gauge your personal situation.

[CaliTerp07]

We're super conservative in what we want. With combined salaries around the $130-140k mark, we're looking to stay around $430k. That will keep our mortgage payment under $2200 (with 20% down), which was our goal. If one of us loses our job, the other will easily be able to carry the mortgage on the single salary.

It was important for us to be able to continue to travel, to have disposable income, to fund future college accounts at the max level possible, etc. The mortgage broker said we could go up to $600k if we wanted to, but the numbers at that level terrified me.

[CAVA1990]

It may depend where you are in your career too. If you anticipate you'll be getting promotions and pay increases you're in a better position to take on a little more than if you're cruising toward retirement. It's pretty much the American way that when you buy you're first home, you'll be eating beans and weenies and sitting on orange crates (I may be dating myself) for awhile.

[khuntrevor]

I would say 20% of gross and the mortgage shouldn't be more than 3X and at least 20% down. What gets me is people refinancing and starting a new 30, when they are in their 40s or 50s. Your age + term of mortgage (years), should not be over 65. Leveraging yourself into sky-high property taxes doesn't make much sense to me, either. Proving your senior citizen tax indigence at 65 to Fairfax County Government would not make my day.

I put 40% down on my fourth home--I enjoyed the small payment so much that I paid cash for my 5th, 6th, 7th, and 8th. I am a huge fan of stock dividends, but the dividend you receive in the form of free rent on the first of the month is even better...and more frequent....and a lot higher.