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Mortgage Payment v. % of Income
Posted on 4/21/14 at 8:30 am
Posted on 4/21/14 at 8:30 am
Is there a general rule of thumb re: % of monthly gross income being allocated towards a mortgage payment (including escrow)?
Trying to figure out what would be "safe" and "affordable."
Trying to figure out what would be "safe" and "affordable."
8
Posted on 4/21/14 at 8:48 am to krehn11
people say 28/36%
i always think it is better to go in reverse and take the net income and subtract EVERYTHING you have in obligations and desired spending and see what you have left. then you know you are in a comfortable spot.
meaning:
income less
401(k) max
emergency fund
groceries
car exp
debts
desired vacations
etc
etc
etc
etc
whatever that number leaves you is a great place to start. From knowing what you SHOULD afford, not what you CAN afford.
my 2 cents
ETA: those numbers should be in monthly amounts.
i always think it is better to go in reverse and take the net income and subtract EVERYTHING you have in obligations and desired spending and see what you have left. then you know you are in a comfortable spot.
meaning:
income less
401(k) max
emergency fund
groceries
car exp
debts
desired vacations
etc
etc
etc
etc
whatever that number leaves you is a great place to start. From knowing what you SHOULD afford, not what you CAN afford.
my 2 cents
ETA: those numbers should be in monthly amounts.
This post was edited on 4/21/14 at 8:50 am
Posted on 4/21/14 at 8:51 am to krehn11
quote:
Is there a general rule of thumb re: % of monthly gross income being allocated towards a mortgage payment (including escrow)?
I like 25% of net income as an absolute ceiling, and only if relatively debt free otherwise.
Posted on 4/21/14 at 9:08 am to krehn11
I think the general rule is 25%, but that all depends on your place in life.
When me and my wife bought our house, we over extended ourselves a bit, I think it was like 28%, maybe a bit more, but we knew that we were staying in our house for awhile.
Now 3 years and a few raises later it's down to almost 18%.
When me and my wife bought our house, we over extended ourselves a bit, I think it was like 28%, maybe a bit more, but we knew that we were staying in our house for awhile.
Now 3 years and a few raises later it's down to almost 18%.
Posted on 4/21/14 at 9:52 am to krehn11
I wouldn't go over 30% of bread winners salary.
Posted on 4/21/14 at 10:01 am to krehn11
for an owner-occupied single-family home, I wouldn't exceed 25%. Less than 20% is much better
Posted on 4/21/14 at 10:09 am to krehn11
Percentages are nice as an FYI kind of thing, but you should really do what Mr.Perfect said.
It really depends on the loan and the person. A person getting approved for a jumbo will be allowed a much higher DTI for example.
Also understand that when most people talk about DTI, they're talking about their gross which doesn't tell you the whole picture with respect to affordability (which is what you and the lender should care about.)
It really depends on the loan and the person. A person getting approved for a jumbo will be allowed a much higher DTI for example.
Also understand that when most people talk about DTI, they're talking about their gross which doesn't tell you the whole picture with respect to affordability (which is what you and the lender should care about.)
This post was edited on 4/21/14 at 10:11 am
Posted on 4/21/14 at 12:14 pm to ZereauxSum
Thanks for the responses. My concern is cash flow - I don't get why numbers are so often based on gross.
Posted on 4/21/14 at 12:58 pm to krehn11
quote:
Thanks for the responses. My concern is cash flow - I don't get why numbers are so often based on gross.
Its easier to calculate and universal. Two people with same income might have vastly different cash flows.
Posted on 4/21/14 at 1:01 pm to Hawkeye95
Sure - but the ability to pay the debt will be based on available cash.
Posted on 4/21/14 at 1:40 pm to yellowfin
quote:
I wouldn't go over 30% of bread winners salary.
That's pretty much what we did. 28%
Posted on 4/21/14 at 1:57 pm to Cdawg
I think it depends. I am young and over 30% like 30.5%) but that 30% is less than what I would pay for rent to be in a good school district or not have the risk of being shot...
This post was edited on 4/21/14 at 2:09 pm
Posted on 4/21/14 at 2:09 pm to ZereauxSum
quote:
Percentages are nice as an FYI kind of thing, but you should really do what Mr.Perfect said.
Yep. Wife and I's Mortgage/taxes/insurance is 9% of our Household gross, but if you combine debt service to student loans we're at 25%
Posted on 4/21/14 at 2:10 pm to krehn11
quote:
Sure - but the ability to pay the debt will be based on available cash.
Yeah, but cash flow is based on many things that you can't insert into a formula?
Do you want to borrow more than what you qualify off of based of DTI?
Posted on 4/21/14 at 2:33 pm to Hawkeye95
No - we would be fine. I'm just spitting out some thoughts.
We are currently at 10.77% but looking to upgrade as we are thinking of expanding our family. The only debt we have other than our current mortgage is my wife's vehicle note.
We are currently at 10.77% but looking to upgrade as we are thinking of expanding our family. The only debt we have other than our current mortgage is my wife's vehicle note.
Posted on 4/21/14 at 2:50 pm to krehn11
quote:
Sure - but the ability to pay the debt will be based on available cash.
Correct. Why % again are a guideline.
If you take home home 10k a month and want to drop 5k/mo on an OT mid range house, you still have 5k a month to service debt. With 2k/mo in expenses you're still saving 36k/yr.
Posted on 4/21/14 at 3:41 pm to ItNeverRains
quote:
If you take home home 10k a month and want to drop 5k/mo on an OT mid range house, you still have 5k a month to service debt. With 2k/mo in expenses you're still saving 36k/yr.
Right but how hard is it to find 10K pay if something bad happens with job loss?
Posted on 4/21/14 at 4:00 pm to JayDeerTay84
quote:
Right but how hard is it to find 10K pay if something bad happens with job loss?
I would want to have a bunch of money saved up just in case something like this happens.
Posted on 4/21/14 at 4:04 pm to JayDeerTay84
quote:
Right but how hard is it to find 10K pay if something bad happens with job loss?
Depends what you do. Job security and job scarcity should be calculated into your decision. Hence the "% are a guideline" way of thinking.
Someone posted a nice calculator a few days ago, I'll see if I can find it...
Posted on 4/21/14 at 4:06 pm to JayDeerTay84
quote:
Right but how hard is it to find 10K pay if something bad happens with job loss?
if you plan for the worst outcome always, you wont do anything.
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