Since we are preparing to move, I'm trying to figure out how much money to spend on a new mortgage. When we bought our current house, we under brought, and while I am tempted to do that again, I'd like to buy a forever house, if possible. So I'd like to take into account hubby's promotion he is getting next year (He has the title and as soon as he puts together his team, HR will then give him the grade adjustment). I would never do more than the recommended 28 percent of gross, but right now we are only spending 10%, and that includes property tax and insurance.
I am stunned by the actual amount of money they are willing to lend us, and it got me thinking, do people actually take out the amount the banks are willing to give them? What percent of your gross income do you spend on housing?
I'm thinking maybe of doing 20% of our current income. In fact, starting next month, I'm going to try to put that amount aside. Then, depending on how hubby's job is going, maybe doing 25% of our current income. Once his bump comes, we will then drop back down to 10-15. I prefer to put more into retirement than into housing, that's for sure.
We don't really carry debt. We do have a car payment and student loan, but its less than 5%.
We pay about 65% of my husband's gross income on rent.
I can't imagine what it feels like to spend 10%. Must be nice.
Am I just totally not understanding the question, or is this an eye opener to how poor we are?
And I feel blessed!! But, I think I did it right. I know how much he makes a month, and with that money we use about 65% of it to pay rent.
Base it on actual salary now!! Do not count on something you do not have.
No more than 25% is reasonable.
18% right now. It's higher than it's ever been because I'm recently separated and am now basing my housing costs off of just my salary instead of two incomes (and only one mortgage). I don't see that 20% would be a problem for a few months if you don't carry debt. But don't get sucked into the big numbers that the banks promise. That's what caused the housing crisis in 2006 - people thinking they could handle more house than they could actually afford.
Hi J.,
You do have debt - you have a car payment and a student loan. These are debts. Yes, people do take that amount out - but they also loose their homes later to foreclosure and short sales when their plan doesn't go exactly as planned, and they can no longer afford their house.
I would suggest you continue to underbuy and fund your retirement and general savings. And yes, I am a financial planner. C.
We did NOT take as much as the bank was willing to give us. We knew my husband's income fluctuates and we had saved for a deposit on a house we could afford with a mortgage at 20% of our base income including all taxes etc, knowing that he often makes more and it would be less %. We were shocked when we went to purchase and the bank was practically begging us to take a much bigger loan-no down payment needed. ? We could have moved into a mansion in our area. I can see how lots of people got in way over their heads on mortgages....we declined against some pressure and took the loan we could afford for the house we could afford.
Like you, our mortgage was painless and small as things went according to plan for a few years. But THEN that huge crash happened where everyone went under on their mortgages. We were unaffected as our house was never inflated so it never lost value. But THEN we hit some unforeseeable financial traumas (to say the least) but thanks to our low mortgage, we never paid a mortgage payment a day late-even though it was very tough some months for about two years.
Splurging for the forever home of your dreams is great, but as you already know, you have to stay smart. If anything ever happens, you don't want a huge loan or mortgage payment that would bury you in just a few months' time. If you're absolutely bullet proof and rich, then no worries, but those type of people usually buy houses for cash :) and YES, TOO MANY people take the money the bank offers-thus America's awful debt issues.
We are less than 10% but that is because we are huge planners. We refinanced more than once and our rate is now just over 3%. Each time we ever did a refi, we would pay down the mortgage.
We can't rent a 1 bedroom apt that is semi nice for what our mortgage payment is right now. Our house is a little over 4000SF and the mortgage balance is less than 1/2 of the original amount. It is all in the planning.
We do not do escrow because we are disciplined enough to pay our own taxes and insurance.
I would suggest not putting a contract on anything with "anticipated" income. You purchase based on what you are able to pay down at the time of purchase and take into consideration the regular expenses that go along with a house. Any extra monies that come along afterward should be used wisely for the house, retirement, college educations, etc. Don't count on money you do not have in hand.
Yes some people are so stuck on the # the bank tells them that they get full of themselves and go for the maximum. We have a neighbor like that.. They are divorcing right now and she has to move out with 3 kids because she can't pay the $5000 a month mortgage... yes, $5000 a month which I find crazy. Their house is about the same as ours and on a prime lot as ours and we pay WAY less than that. It is all about planning.
Our small mortgage is the only debt we carry. You also have to think about your overall debt.
Good luck finding the home right for you!!
it's always better to look at net rather than gross - the "general" recommendation is no more than 25% of net pay... however, if you are someone with daycare, car notes, credit card debt, lots of eating out, vacations, it should be significantly less...
ETA: I just did the math, our mortgage/taxes/homeowners is 18% of gross. To the person at 65%, wow! Only 35% for utilities, food, car, gas, medical, clothing, savings, etc.? I'm hoping that's 65% of net, not gross, but still, wow - rent must be sky high where you live :(
Larger houses need more upkeep, renovations etc. Have you just set out a budget including saving 1% of the house's value each year for upkeep, saving every month for new cars so you don't take out loans next time, pay off the student debt asap, retirement etc? How about completely funding college for your kids? I definitely put that ahead of living in the house I really want. We don't have a mortgage at all and I don't ever want to have one. We don't live in our dream house but it's amazing the money we save living simpler and then if nothing goes wrong, we can buy a nicer house someday. Lots of years left.
Ours is about 5%. (Including insurance and taxes.) With home repairs, utilities and all the other, we are probably closer to 8-10%. We wouldn't buy a house over that, at the time. I'd say the MOST I would ever do would be 15%. I want to shovel more money into retirement, college, and emergency funds, then housing.
We are paid off.
But our rule if thumb was half of what the lender "says" you can afford.
Large down payment.
Dave Ramsay says 25% of your NET income.
Don't ever "count" on a promotion OR a raise. Seriously.
Ours is around 13% of gross with taxes/insurance. We also throw a lot of extra money at the mortgage and shoul have our 30 year loan paid off in 7-8 years.
When we bought our current house the bank pre approved us for a mortgage of 1.1 million. We bought a house that was half of that. We carry no other debt.
Take a deep breath... and under buy. We spend 10% of our gross on our mortgage (this time around). We bought in FL at the bottom of the market. If we were to repurchase our home in the current market, it would be closer to 20%
When we applied for a mortgage in NY, we qualified for $850,000. We purchased our home for $350,000 and then sold it for $240,000 8 years later. Because we banked the extra money (instead of paying the bank a ton of interest), we were able to take the huge loss and move out of state.
Buy what you can afford RIGHT NOW because you never know what will happen financially in your future. I think you would rather have the cash in the bank than an extra set of rooms to heat/cool/clean/furnish!
Unfortunately, we are in this real estate mess because people bought what the bank "told them" they could afford rather than what their budget actually afforded!
wow yea my number is a lot higher than most! ahh the joys of being poor=)
I read somewhere that your home could/should be 10% of your take home. But I just googled it and they said no more than 25% BUT that is determined by how much other debt you have. Your total debt payments should not exceed 45% and in best case scenario, be 33% of take home.
(including cars, credit cards, student loans, etc).
BTW. Ours is about 8% of take home.
Interesting question. I had never done the math, so it was great to figure it out! We just purchased our "forever house" in January. We put almost 40% down, and have a 10 year mortgage that we hope tp pay off in 9 years. The amount we should spend monthly is 14% of our income, but we pay extra every month, so it winds up being around 17%.
Great question!
We are right at 10% all in (payment, insurance, taxes). We are in a position where one of us could lose his or her job (or take a drastic pay cut) and we could still pay all of our bills. We figure you never know what life might bring so best to live small and comfortable.
My husband is a realtor and most people he works with do take the full amount the bank offers to lend. We both think that is a bit mad for the vast majority of folks but I don't have to walk in their shoes/it's not our decision and marriage. What I qualify for on my income alone is insane. Mortgage lending is a business and it is not in their best interest to look out for consumers and what they can or cannot afford. Such is life.
We are at 25% of net income. It is tight right now, but once we finish paying off car and student loans we'll be quite comfortable. I don't really live in Plainfield--I live in another one of the Western suburbs, but if I DID live in Plainfield, that # would be closer to 15-20%. Money goes much further in the Western and SW suburbs than in the city of Chicago or the Northern/NW burbs.
About 10 % but we choose to spend our money on other things. We will be upgrading soon & plan on our mortgage being no more than 25% of our net income.
Dave Ramsey says it should be between 25% & 35%, but that is with your debt being 5% to 10% of your income. If you have lots of debt you should not have a mortgage that will be higher than 25% of your earnings.
Twenty percent, including insurance and property taxes, but not including repairs, HOA fees, or improvements.
The amount of our mortgage to gross income is 15%.
24.7% of net...so less of gross...
We pay a little less than 25% of my husband's income after taxes are taken out. I work part time so there is that extra money too. We save very aggressively for retirement and our kid's college, and honestly, I wish we had bought a less expensive house so I had more spending money! We do not have a car payment and all our student loans are paid off, so that is good.
Yikes, my mortgage is 30% of my income (including taxes, insurance, etc) that would be so nice to have 10%! The only other debt I have is a car payment. 30% I don't feel like I'm struggling.
Mine is about 15%. 19% if you include taxes and insurance. I wish it was lower, but as a single parent, it's not bad. I still pay extra each month and sock a good chunk into retirement and college fund savings.
When I bought three years ago, it was 26%, including taxes and insurance and I was approved for almost double the mortgage I took out. I knew that I was getting a promotion in the next six months, but the bank sure didn't. Even with an excellent credit score, I still think it was stupid of the bank to offer that much. If I had maxed out their offer, I would have been around 42-45% of gross income, which is crazy.
I think the % of income is a very very general guide. Think of it this way - someone makes $600k a year, brings home $300k. If they spend 50% on housing, they have $150k left over for other living expenses. Someone who makes less than $150k a year automatically has less for living expenses even if they spend 0% on their housing... So I think housing should just be part of an overall budget. Banks don't care how many kids you have to send to college, if you're saving for retirement, ever want to go on nice vacations, nicely furnish the huge house they just let you buy etc, when they approve you. If your husband is goign to be making good money, I wouldn't count on social security. No one in the upper tax brackets I know does. So if he doens't have a very very secure pension, you should be saving way more than a typical 401k for retirement. Here's a great webpage. http://www.bankrate.com/calculators/retirement/retirement...
it lets you enter amounts in today's dollars, assume some rates of return etc and gives you how much you need saved today to fund retirement. If I assume in retirement you'd want $50k a year in today's dollars to live on, your husband has 30 years to work, retires at 65, lives till 88, inflation is 2% and rate of return on the assets you invest is 5%, you need $408k saved today set aside for retirement. Your mortgage free house at retirement isn't included so that's extra to spend. You can play with the numbers. I'm making guesses though don't assume your investments will earn 10% a year... If you still have a studen loan and car payment, you likely aren't really saving enough for retirement so I'd watch how big a mortgage you take.
I say plan on 1/3 of your income going for housing costs.
Which should, in my opinion, utilities, house payment, insurance, a repair fund, anything that is related to sitting in that house and it being functional. Future plans for building on, adding a storm shelter, adding a storage building, anything that is related to housing or property ownership.
Then the other 2/3's should go for food and personal needs then whatever your other lifestyle needs are.
In suburb of Dallas, our mortgage is about 10.5% of our annual combined salary, adding in property taxes I believe it hits about 14-15%. We were paying about $300 less per month last year, but when rates dropped really low we opted to refinance to a really low rate and from a 30 yr note to a 15 yr note. Nice to know the year my youngest graduates from high school our house will be paid off. :)
We paid about 10%. We actually made payments of about 20% more than our scheduled mortgage payments and paid it off early. We were pre-approved based only on my income and started looking at houses in that range. We bought at the lower end of what we looked at - it was simply the house we both loved. We have/had no other debt than our mortgage.
When we realized we could actually 'afford' twice the house we were pre-approved for, we looked briefly and both realized that no way did we need or want that amount of house. Giant houses have corresponding giant carbon footprints. Why buy any more house than you need? I think you are way better saving the additional $$ for retirement.
My mortgage is obscene and my house is tiny. Right now it's about 25% of our combined gross income but my husband's icome varies so some years it's been closer to 27%. In any case, it's far too high and we can't do this forever. It really, really interferes with being able to adequately fund our long-term goals like college saving or retirement.
13% If you include all housing related savings and expenses it goes up to 15%.
For us, it's 13.84% -- it was lower but we refinanced last year. When we refinanced (for the purpose of having work done to maintain the house), we kept ourselves to the smallest budget possible and had estimates done before we signed. It's probably a little higher percentage-wise, as I didn't calculate homeowners insurance/home warranty into that figure.
I don't know if the bank would have offered us more; we were really pretty clear about the amount we felt was necessary and I didn't sit in on the conversations at the bank-- husband did it on his lunches. We also choose not to carry debt, so other than some medical bills we are paying on, we are fortunate. He also bought the house in the late 90s before the bubble inflated, and it's a pretty modest home.
18%
When we bought the house it was 25%. We got a PHFA loan with a low interest rate and low down payment. So we bought an inexpensive house and are fixing it up.
It includes mortgage, insurance, and taxes. As our taxes and insurance change, we either have it raised or lowered depending on what is in our escrow account.
Ours is 17.5% (with tax and insurance--12.5% just mortgage payment). When we went to the bank for financing, they offered us twice as much as we wanted. I would never have taken that much! I have friends that are house poor and that is not fun!
