What part of your gross income should go towards housing?

[Jumpem]

And lets say housing includes mortgage, property tax, and homeowner's insurance.

 

[Brian23]

Most people will say 40%. I say as much as possible. The less time you're paying interest, the more money you'll have later to buy awesome stuff.

 

[Amplifier]

Depends on what your goals/situations are. Could you give me more information so I can give you informed advice? I'll be back from court at ~noon.

 

[BoberFett]

28% is the standard

 

[Amplifier]

Originally posted by: BoberFett
28% is the standard

There is no standard. Income, goals, needs all play a huge roll in how he should balance his housing budget.

Again, give me some more information (unless you want cliche advice)

 

[Jumpem]

Originally posted by: BoberFett
28% is the standard

Well the house I am looking at would be 27% of my gf and I's income.

 

[BoberFett]

Originally posted by: Amplifier

Originally posted by: BoberFett
28% is the standard

There is no standard. Income, goals, needs all play a huge roll in how he should balance his housing budget.

Again, give me some more information (unless you want cliche advice)

Yes, there is a standard. When attempting to get a mortgage lenders use 28/36 for conventional loans or 29/41 for an FHA loan.

If you're a mortgage broker, please, tell me how and why you'll approve a buyer above those limits.

 

[BoberFett]

Originally posted by: Jumpem

Originally posted by: BoberFett
28% is the standard

Well the house I am looking at would be 27% of my gf and I's income.

That's probably about right then, you don't want to go any higher than that.

 

[b0mbrman]

Originally posted by: Brian23
Most people will say 40%. I say as much as possible. The less time you're paying interest, the more money you'll have later to buy awesome stuff.

Unless you put that extra money into an investment with larger returns than the interest rate on your mortgage. Then you'll have more money later for that awesome stuff

 

[Jumpem]

Originally posted by: Amplifier
Depends on what your goals/situations are. Could you give me more information so I can give you informed advice? I'll be back from court at ~noon.

Sure. 🙂

My gf and I are casually looking at houses. We would like to buy within the next year or two. Maybe sooner if we find a house we really like, since it will dissappear if we wait on it.

The mortgage, taxes, and insurance would be around 27% of our gross income. We wouldn't really be able to pay extra on the mortgage right away. She has quite a bit of CC debt from college, and we financed a washer/dryer and a few pieces of furniture. We also both have student loans, and she has a car payment.

So we could afford the house and have $1k leftover each month. But that wouldn't leave us alot to pay off her CCs, or save for other things.

 

[DivideBYZero]

The part that covers the rent.

 

[Jumpem]

Originally posted by: BoberFett
That's probably about right then, you don't want to go any higher than that.

I've heard of the mmortgage people uisng the ratios you mentioned above. Can you excplain them a little?

When they figure the monthly payment and house you can afford do they calculate taxes and insurance into it? Also, what is the difference between an FHA and regular mortgage? Aren't FHA ones capped at $177k or so?

 

[BoberFett]

Originally posted by: Jumpem

Originally posted by: BoberFett
That's probably about right then, you don't want to go any higher than that.

I've heard of the mmortgage people uisng the ratios you mentioned above. Can you excplain them a little?

When they figure the monthly payment and house you can afford do they calculate taxes and insurance into it? Also, what is the difference between an FHA and regular mortgage? Aren't FHA ones capped at $177k or so?

Those numbers represent the standard percentages that lenders use to determine how much debt you can handle. The first number is your housing costs. They generally won't lend you more than that percentage of your gross income to pay towards housing. The second number is your total long term debt percentage. Long term debt includes the minimum monthly payment on all credit cards, auto and school loans with more than ten months of payments left, etc. All long term debt together will generally have to be below that second percentage.

If a person has no long term debt, no credit card balance and no car payments, they will probably be able to borrow the max housing percentage based on income. However a person with school loans, credit cards and a car payment that already total 15% of their monthly income, you have to subtract that 15 from the second number. So in the case of conventional, that leaves you with 21% and FHA 26%.

In other words once your long term debt gets over 8% for conventional or 12% for FHA, it begins to affect your ability to borrow the maximum amount for a home loan.

And yes, they will calculate taxes and insurance in your payment. You'll pay that to the mortgage company and they'll escrow it and pay your insurance and taxes for you. Once you have 20% or greater equity in the home you can refinance if you choose to eliminate mortgage insurance, and can choose to pay your hazard insurance and taxes yourself if you wish.

As for FHA limits, it varies by region. Here in the Minneapolis metroa area the current FHA max is ~$252K. Other parts of Minnesota are lower. The FHA bases it's maximums on average home price. It's usually spot on with what the average home price is. Most first time buyers will end up in a house that qualifies for FHA.

 

[iamwiz82]

Mortgage lenders will lend more than that. Hell, I was approved for a loan that equaled out to be 50% of out income. Needless to say we didn't spend near that, but lenders will pretty much approve anything.

This is with student and auto loans.

 

[tw1164]

FHA loans are insured by the feds, lenders have less/no risk in issuing the loans. You're able to place a low downpayment (3-5%), instead of the 20% in conventinal loans.

 

[BoberFett]

Originally posted by: iamwiz82
Mortgage lenders will lend more than that. Hell, I was approved for a loan that equaled out to be 50% of out income. Needless to say we didn't spend near that, but lenders will pretty much approve anything.

This is with student and auto loans.

What lender? Traditional bank or fly-by-night internet lender? What type of loan program?

As a realtor I hear of more deals going sour because of these damn internet lenders. A lot of people I talk to are starting to advise their sellers to require buyers that are using internet lenders to get approved by another lender of their choosing. They can still get the loan from their original lender, but the seller needs to make sure that the financing will actually make it through underwriting and one way to do that is to get a second opinion from a reputable lender.

 

[iamwiz82]

Originally posted by: BoberFett

Originally posted by: iamwiz82
Mortgage lenders will lend more than that. Hell, I was approved for a loan that equaled out to be 50% of out income. Needless to say we didn't spend near that, but lenders will pretty much approve anything.

This is with student and auto loans.

What lender? Traditional bank or fly-by-night internet lender? What type of loan program?

As a realtor I hear of more deals going sour because of these damn internet lenders. A lot of people I talk to are starting to advise their sellers to require buyers that are using internet lenders to get approved by another lender of their choosing. They can still get the loan from their original lender, but the seller needs to make sure that the financing will actually make it through underwriting and one way to do that is to get a second opinion from a reputable lender.

It wasn't a bank nor was it an internet lender. It was a small mortgage broker. We didn't stick with him, though. We went with Chase, instead.

 

[BoberFett]

Originally posted by: iamwiz82

Originally posted by: BoberFett

Originally posted by: iamwiz82
Mortgage lenders will lend more than that. Hell, I was approved for a loan that equaled out to be 50% of out income. Needless to say we didn't spend near that, but lenders will pretty much approve anything.

This is with student and auto loans.

What lender? Traditional bank or fly-by-night internet lender? What type of loan program?

As a realtor I hear of more deals going sour because of these damn internet lenders. A lot of people I talk to are starting to advise their sellers to require buyers that are using internet lenders to get approved by another lender of their choosing. They can still get the loan from their original lender, but the seller needs to make sure that the financing will actually make it through underwriting and one way to do that is to get a second opinion from a reputable lender.

It wasn't a bank nor was it an internet lender. It was a small mortgage broker. We didn't stick with him, though. We went with Chase, instead.

Ah, the small broker. He's probably hurting big time now that the refinance boom is over and will say anything to close a deal.

Also, were you pre-qualified or pre-approved? I highly doubt that if you'd attempted to close using his numbers that your loan would have gone through. I could be wrong, but I have my doubts.

 

[Engineer]

Originally posted by: Brian23
Most people will say 40%. I say as much as possible. The less time you're paying interest, the more money you'll have later to buy awesome stuff.

:beer:

One more year = house paid for
few months later = cars paid for

= lots of more serious investment and savings for Engineer who will be debt free at the age of 37 (and I do save just not what I will be later)! 😉

 

[Engineer]

Originally posted by: b0mbrman

Originally posted by: Brian23
Most people will say 40%. I say as much as possible. The less time you're paying interest, the more money you'll have later to buy awesome stuff.

Unless you put that extra money into an investment with larger returns than the interest rate on your mortgage. Then you'll have more money later for that awesome stuff

Can you guarantee those rates of return vs the guaranteed rate of your mortgage?

 

[Jumpem]

Originally posted by: BoberFett
Those numbers represent the standard percentages that lenders use to determine how much debt you can handle. The first number is your housing costs. They generally won't lend you more than that percentage of your gross income to pay towards housing. The second number is your total long term debt percentage. Long term debt includes the minimum monthly payment on all credit cards, auto and school loans with more than ten months of payments left, etc. All long term debt together will generally have to be below that second percentage.

If a person has no long term debt, no credit card balance and no car payments, they will probably be able to borrow the max housing percentage based on income. However a person with school loans, credit cards and a car payment that already total 15% of their monthly income, you have to subtract that 15 from the second number. So in the case of conventional, that leaves you with 21% and FHA 26%.

In other words once your long term debt gets over 8% for conventional or 12% for FHA, it begins to affect your ability to borrow the maximum amount for a home loan.

Our student loans are $70k, her car is around $23, and her CC debt and appliance/furniture are about $14k. That's $107k. 🙁 At least most of it is from student loans that allowed us to get good jobs. I'd like to pay off the CCs and her car as soon as possible, but am not too worried about the school loans.

So if I know our gross monthly income is X, and our monthly debt payments are Y... how do I calculate those two ratios?

 

[BoberFett]

Originally posted by: Engineer

Originally posted by: b0mbrman

Originally posted by: Brian23
Most people will say 40%. I say as much as possible. The less time you're paying interest, the more money you'll have later to buy awesome stuff.

Unless you put that extra money into an investment with larger returns than the interest rate on your mortgage. Then you'll have more money later for that awesome stuff

Can you guarantee those rates of return vs the guaranteed rate of your mortgage?

If someone wants to pay 40% of their income towards their mortgage, I say go right ahead, as long as their actual payment is about 2/3 of that amount. Putting extra money towards your mortgage is excellent, I recommend it to anyone. Compare a 20 yr mortgage to a 30yr and look at how much money is saved over the lifetime of the loan.

 

[rh71]

27% is our figure (monthly gross) right now. It's quite deceiving though... net is more realistic in a case-by-case basis.

 

[BoberFett]

Originally posted by: Jumpem
Our student loans are $70k, her car is around $23, and her CC debt and appliance/furniture are about $14k. That's $107k. 🙁 At least most of it is from student loans that allowed us to get good jobs. I'd like to pay off the CCs and her car as soon as possible, but am not too worried about the school loans.

So if I know our gross monthly income is X, and our monthly debt payments are Y... how do I calculate those two ratios?

Here's my companies quick and dirty calculators: How much can I borrow?

 

[Engineer]

Originally posted by: BoberFett

Originally posted by: Engineer

Originally posted by: b0mbrman

Originally posted by: Brian23
Most people will say 40%. I say as much as possible. The less time you're paying interest, the more money you'll have later to buy awesome stuff.

Unless you put that extra money into an investment with larger returns than the interest rate on your mortgage. Then you'll have more money later for that awesome stuff

Can you guarantee those rates of return vs the guaranteed rate of your mortgage?

If someone wants to pay 40% of their income towards their mortgage, I say go right ahead, as long as their actual payment is about 2/3 of that amount. Putting extra money towards your mortgage is excellent, I recommend it to anyone. Compare a 20 yr mortgage to a 30yr and look at how much money is saved over the lifetime of the loan. And paying back a 30 yr amortization in 20 yrs is even better.

I couldn't agree more. There was a large debate thread earlier that focused on investing the money into something else vs placing the extra money into your mortgate. If I would have placed the extra money that I've sent to my mortgage over the last 6 years into other investments, would I have beat the 7% mortgage rate that I had? Doubtful unless I had chosen energy stocks or the likes.

Point being, once that mortgage is paid off, that's money in the bank (even if you sell and buy a new home, saved interest is saved interest).

Oh, and the hogwash that it's tax deductible is just that. Spend 100% to get a 15% tax break != a good deal!



The long discussion thread.