What percentage of your income should you spend on a mortgage? I dont want to overextend my budget?
Im 25, I am in shock when i see my friends (same age, same entry level income) go out and buy 250k-300k houses like its nothing. They dont have 20 bucks to fill up the gas tank but they can afford 250k house??? I dont want to be in their position where 90% of their income goes to mortgage, without having any savings on hand. what is a proper mortgage payment/income ratio?
Usually, 30% is spent toward a mortgage payment.
Keep saving and before long you will have a nice house!
1(By then, your friends houses may be foreclosed on.)
the general ratio is 25 percent of income for morgate payment limit. any more and the banks will not lend the money.
2the old rule is not to spend more than 25% of your income to mortgage. because the mortgage is ony a small part of what the cost are for maintaining a household.
3do not look at the price of the house, but look at what you want to spend monthly on a house..
suggest as your first house, you buy the cheapest house on the market.fix it up , build some equity and aftera few years, sell it and buy a house that is just a little bit nicer.you are better offf waiting for and earning that dream house.
The proper formula is 3 times your annual salary. This is assuming that your other debt to income is in check…ie your car is only 5% of your income ect. So it is fesable depending on your friends jobs that they can afford these homes (under the mortgage company standards) and still have overspent in other areas of their lives (cars and credit cards). You also have to be wary of lenders who will streach things to get you into a mortgage…this is basically setting someone up to fail and it is a major problem with our mortgage industry right now.
4Investor guidelines set specific payment and debt to income ratios borrower's must meet in order to obtain loan approval. They're not going to let you borrow more than you can afford.
That said, a great deal depends on your choices. You may well be able to qualify for a higher payment than your lifestyle choices permit.
With automated underwriting these days if is not uncommon to see borrowers approved who will be devoting 40% of their gross income to their monthly mortgage, property tax, and fire insurance debt.
Generally speaking, it becomes more of a challenge once the debt to income ratio exceeds 45%-50% although I hve seen them higher a very few times.
5Get in the game! Many benefits to owning a house. Your interest and taxes are tax deductible. that means if you pay a mortgage and tax of say 1500 a month, you are really only paying 1000 a month (Roughly) with an effective tax rate of 35%
You have to figure How much is my take home,subtract your expenses, and save a bit for emergencies. then how much can you pay each month. Don't forget water electricity gas etc. Often yyou will find that its not that much more then renting and the money is effectively going in to your pocket instead of a landlords.
Additionally your income will increase over time but your mortgage will not (Taxes and utilities mgiht, but the big nut is the mortgage)
At first it will be a struggle,but
In 10 years time your payment will be easy, and you will have equity in the house
One caveat, avoid adjustable mortgages, they can crush you pretty quick in uncertain economic times
6Step One: Set up a spending plan so that you know what your current expenses are. I'm big on a weekly spending plan:
http://money.kevingunn.org/index.php?/ar…
Step Two: Set your financial goals. Want to retire early and/or rich? Investing in a good diversified portfolio NOW is your best shot at getting there. I recommend reading "The Informed Investor: A Hype-Free Guide to Constructing a Sound Financial Portfolio" by Frank Armstong III. It'll give you a good foundation and is not a hard read.
Step 3: Now that you have a budget and are saving for your long term goals, what's left over? You are now looking at how much you can spend without sacrificing your future. Decide how much of your excess cash you want for gadgets, travel, entertainment, and other purchases. Decide how much you are willing to allocate to a mortgage instead. (Don't forget to add your current rent to the money available for your mortgage since you won't pay that any more).
Step 4: Now that you now how much you want to spend on a mortgage, use a mortgage calculator to figure out how much house you can afford. You can use a "how much house can you afford" calculator, but by this point you have already figured out how much mortgage you want to take on, so instead try something like this:
http://bankrate.com/brm/mortgage-calcula…
Play with the numbers to get a house value that matches your mortgage budget.
The GREAT NEWS is that you are asking the right question. Most people start with the house and then try to figure out how to pay for it. Your frame of mind is one that puts you well on the road to long-term financial success. Good luck!
7here's a site i can highly recommend for you. give it a shot!
8I agree with the 25 – 35 % of your pay. Check out http://www.expenseregister.com/Home/budg… for a simple budget plan.
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