How much of your income should you spend on a mortgage?

[lecach]

We're thinking of buying a new house. It looks like the payments will be about 35% of our take home pay. Is this a good percentage? Is there a standard that we should be shooting for?

 

[hmgolden]

You should post this on the budget board. You'll get better answers there.

 

[MEME]

You must know this prior to purchasing a home. You are on the right track by just asking the question.

I built a home 3 years ago, so it's been a while since I had to think about this...but I believe that the figure is about 32% of income is allowed for house expenses.

It is probably best to search on the web for: Debt to income ratio. Suze Orman site offers great advice. Also go to: this site to learn more about home buying and your purchasing power.

 

[Tinkerbelle14]

I just bought a condo and 35% sounds about right. As much as this makes me seem like a 50s housewife (to-be!), my fiance takes care of working out the numbers and the finances in general, mainly because I hate math, and we had the help of a friend who manages a bank branch here. I definitely wouldn't go over 35% and would contact your bank to schedule a meeting with the mortgage advisor.

 

[WithDisneySpirit]

I am a mortgage loan officer and just noticed this thread. So much depends upon the load of other debts you might have. Personally, I do not like to see young people owe more than 41% total debt on their credit report. This would include total mortgage payment, credit cards, student loans and installment loans like car payments. If you have other strengths like high credit scores, extra savings in the bank or other income you are not counting, you may be able to go higher but it is not an advantage to go higher than 50%. Keep in mind that you should add your other debts to the mortgage payment to find this percentage. Standard conventional ratios recommend 28-29% for mortgage and 36 - 41% for total debts.

HTH,

 

[lecach]

Our only debt other than our house is my DH's car - $266 a month. We of course have bills like cell phone, groceries, insurance, etc. But no credit card, school loans, etc.

We have $30,000 in a savings account (stupid - we know - we need to invest it) and 401Ks and IRAs totalling around $30,000 I think.

Our credit scores are great.

So I think we are in really good shape. One thing - our DS's daycare is $800 a month. But there is another option closer to our new house that would save $300 a month. So if we HAVE to we can move him and our mortgage wouldnt be that much higher than we have now.

Part of our problem is that our current house is worth something now, but the neighborhood will start to decline due to age in the next few years. And our house will need a roof if we stay much longer. Plus we've had some foundation issues that we think are now fixed - but we're just afraid if we stay something else could happen. So we have this feeling that we need to get out now. And houses have really risen in cost in our area over the last few years.

 

[WithDisneySpirit]

It sounds like you are in pretty good shape! I would definitely consider a lower child care cost though