Does anyone know what the good rule of thumb is for the ideal and maximum percentage of your income that you should be paying for rent or a mortgage?
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When DH and I got married in 1954 it was the custom not to have a larger mortgage payment than one week's salary. I think people nowadays are paying more for whatever reasons. I would strongly advise against ARMs in view of all we've heard on the news. Try to get a fixed, low interest even if you have to settle for less house. More house usually means more upkeep and more insurance and utilities.... hence.. more expense.
I heard that it should be broken down as such:
35% Housing, 15% transportation, 10% savings, 15% (or less) debt, 25% living expenses. These are percentages of your take-home (net) pay.
I understand that you should never buy a house valued at more than 3 years salary.
It's difficult to say exactly. Figure out how much you currently spend on utilities, medical bills, food, everything you spend money on throughout the year. The whole 33% thing may have worked years back, but now, we have many options for extra expenses such as internet, cell phones, cable tv, eating out more often than when we were kids. YOU are the only one that knows how much you can afford. Do you need to wear name brand clothes and have the newest electronics? Then you better use 25% of your income. Do you live thrifty without cable, cell phones, etc?
most banks / lenders will say anywhere from 30-40% - which I think is absurd! They encourage you to take out a bigger loan because it benifits them - not you! the lower the percentage, the faster you can pay it off or do other things with the money. When I was working (and making very good money) a lot of our friends with duel incomes bought huge houses, cars etc.
check out Dave ramsey's site - he is sound sdvice and I think he suggests something around 25%. Good luck!
I have read that in an ideal budget your total housing costs should not exceed 35% of your total take home salary, but that is including all of the costs of a home; payment, insurance, taxes and utilities. Good luck!
Here in Canada, we use from 30% of gross income up to 35%. But, these days, even 30% is difficult to achieve.
I've also heard that 35% is the magic number. But it's also important to consider your other expenses and income-- 35% may be too high for some people's situations. We've personally only paid 20 - 25% of our income toward our home, and that includes making extra payments toward the mortgage.
Don't waste your time trying to figure this out on your own! Meet IN PERSON with a seasoned, well-established mortgage person; any good real estate company/agent could give you a few leads. The mortgage professional will take into account ALL the factors of buying a home, not just the percentages you are seeking now. It is simple and complex at the same time.
Don't go overboard and extend yourself, but you also must realize that the professionals are there to help you, not push you into something you can't afford. You are in control! To compare various mortgage products, ask the mortgage person for a SIGNED "good faith estimate". This document lets you compare programs, apples to apples.
This should be at no cost to you. You might have to pay for a credit check, but in this competitive business environment, you might be able to get them to pick that up! Remember, these people--the real estate people, the mortgage people, the title people, all work for YOU!
Also, as a first time buyer, I would strongly suggest that you work with a seasoned real estate professional in the search for your new home. Now, I can just hear you say, "I CAN'T AFFORD THAT!" Well, in reality, you are cheating yourself by NOT using a professional! In most markets, THE REAL ESTATE SERVICES TO THE BUYER ARE FREE! The seller pays for the marketing of the home, and the buyer's agent is paid BY THE SELLER, NOT THE BUYER!
That fee is set up up front, when the home is listed, so those fees will be paid whether you use the listing agent or your own agent. I suggest using your own agent to avoid any conflict of interest issues. I am a real estate broker and state instructor, so I know what I'm talking about! Best of luck! Enjoy the fun of getting a new home!
Dave Ramsey recommends between 25-35 percent. But less is always better. We are a single income family and found a great deal on a fixer upper house and only pay 15%, but we do spend the other ten percent or so on repairs each month.
Dave ramsey is a financial advisor. daveramsey.com
His financial story is phenomonal and he addresses this also.
As a mortgage broker, I can tell you that Lenders will look at 28% of your Gross income for the House payment and 36% for your house payment and all reoccurring debt. Throw those numbers out, because a single person pays a higher percentage of taxes than a married couple does so Net off of the same income will differ. We pay from out take home pay not Gross.
Therefore, consider 35% of your Take home pay for the mortgage and no more than 45% of NET for the house payment and reoccurring debt. Factor into that a maintenance factor for homeownership based upon 1% of the homes value divided by 12. Now after you figure the answer out for the mortgage and the second factor for the total debt, including the mortgage, look at your left over funds. It should be no less than $1000 for a single person, $750 per person for a couple, and not less than $600 per person if you have kids.
Ugh, most are over extended. Remember there is a difference between qualifying for a home and buying what is affordable. As a Loan Officer, I can get you qualified for what is most likely not affordable. Affordable will not get you into trouble.
Individual situations vary. After a divorce in 1984 I found a dirt-cheap place to live and saved $18K in 18 months and bought a house on my own that I could barely afford. The house payment was about equal to one whole paycheck and I was so "up to my eyeballs in debt" that I had to get a secured credit card since the credit union wouldn't grant credit for one. Although they were offered then, I didn't even consider an adjustable-rate mortgage, I wanted the payment permanently fixed. BUT, and this is a biggie, I was in a job where I had virtually NO chance of being laid off (police officer), I knew I was in line for pay raises, I had no job-related expenses (the department issued everything, even a take-home car) so the only thing I had to buy to wear to work was black socks. And I brown-bagged lunches for years, and most of the time after that. While dating the wonderful woman I later married a "big night on the town" often consisted of renting a movie, spaghetti for dinner, and if I had some overtime, perhaps a bottle of wine. In about three years the hard times were over. We had zero debt in 14 years and six figures in deferred compensation (sort of like 401K). Not bad for a street cop and a bookkeeper!
My opinion is that your mortgage shouldn't exceed two years' gross salary and your monthly mortgage payment shouldn't exceed 25% of your net salary. I also believe in 20% down payment. Yep, very strict and difficult. But I really think debt rules a lot of people's lives these days. When a person is in debt, their whole lives are focused on that fact. Think about it. It's something to avoid like the plague!
What if I can't GET 25% Or 35% Or even 40%? Is everyone on here making $60,000 a year? If I were to spend 25% of my income on housing, that would be only $433.25 Or, figuring from gross, it would be $650. Can anyone find me a place to live that will accommodate three people that will cost me only $650 a month? I know I can't. At least not without moving away from my job.
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