What percentage of your annual income is a responsible amount to pay for a house?

Chaotic42

Lifer
Jun 15, 2001
34,128
1,294
126
The time for me to buy a house is coming (Maybe early 2008). My question is, what percentage of your gross income is wise to spend on a house? 200%? I'm paying $815 in rent right now, and I'd really like to be building equity.

What's your percentage?
 

Mermaidman

Diamond Member
Sep 4, 2003
7,987
93
91
Standard answer is no more than 1/3 of your gross monthly income for your monthly mortgage payment.
 

Chaotic42

Lifer
Jun 15, 2001
34,128
1,294
126
Originally posted by: FoBoT
my monthly house payment is about 19% of my gross monthly income

If you don't mind me asking, is that a comfortable amount? I'm trying to start researching now, because I want to make a very informed decision and I know *nothing* about real estate.
 

IronWing

No Lifer
Jul 20, 2001
71,285
30,813
136
It used to be no more than 3x annual gross was the max with 2-2.5x being more reasonable. BUT: That assumed a 20-25% down payment and 5-7% interest. When rates dipped a more expensive house was possible while not overreaching. The flip side is that when rates go higher the affordable house target drops. It also depends on your other debts and income stability.

 

FoBoT

No Lifer
Apr 30, 2001
63,084
14
81
fobot.com
Originally posted by: Chaotic42
Originally posted by: FoBoT
my monthly house payment is about 19% of my gross monthly income

If you don't mind me asking, is that a comfortable amount? I'm trying to start researching now, because I want to make a very informed decision and I know *nothing* about real estate.

it was pushing it when we bought the house, then i got some raises, so it was higher, maybe 23% when we bought the house

it really depends on your other expenses and if you stick to a budget or just blow your money each month

i have wife + 2 kids
 

paulxcook

Diamond Member
May 1, 2005
4,277
1
0
The payment on my house (we're taking possession this Friday) will be about 1/3 of my monthly income. This is really probably the upper limit of where it should be, but that damn PMI is killing me. Once the first 20% of the house is paid off it will go down, especially if interest rates get down close to 6% around the same time. I haven't even started payments and I can't wait to refinance.

Anyway, to answer your question, I'd be a lot more comfortable paying about 20-25% of my monthly income on a house payment.
 

Chaotic42

Lifer
Jun 15, 2001
34,128
1,294
126
Well my rent now is 27% of my gross monthly income, and I can comfortably pay it. I wouldn't want to go any higher though.
 

Mermaidman

Diamond Member
Sep 4, 2003
7,987
93
91
Originally posted by: paulxcook
The payment on my house (we're taking possession this Friday) will be about 1/3 of my monthly income. This is really probably the upper limit of where it should be, but that damn PMI is killing me. Once the first 20% of the house is paid off it will go down, especially if interest rates get down close to 6% around the same time. I haven't even started payments and I can't wait to refinance.

Anyway, to answer your question, I'd be a lot more comfortable paying about 20-25% of my monthly income on a house payment.
I believe the "1/3" figure is all-inclusive: mortgage, property tax, HOA, homeowners insurance, cost of maintaining house .. .
 

JEDI

Lifer
Sep 25, 2001
29,391
2,737
126
Originally posted by: Chaotic42
The time for me to buy a house is coming (Maybe early 2008). My question is, what percentage of your gross income is wise to spend on a house? 200%? I'm paying $815 in rent right now, and I'd really like to be building equity.

What's your percentage?

main banks will loan ~300% of your salary.

so $50k = $150k mortage

subprime = sky's the limit with creative financing. see article about $2.2B bailout by the US govt with our tax $ :(
 

Chaotic42

Lifer
Jun 15, 2001
34,128
1,294
126
Originally posted by: JEDI
subprime = sky's the limit with creative financing. see article about $2.2B bailout by the US govt with our tax $ :(

300% is a bit too high. I'm looking for something more in the 200-225% range. It doesn't have to be my last house forever, I'm just tired of throwing $800 away every month.
 

JEDI

Lifer
Sep 25, 2001
29,391
2,737
126
Originally posted by: paulxcook
The payment on my house (we're taking possession this Friday) will be about 1/3 of my monthly income. This is really probably the upper limit of where it should be, but that damn PMI is killing me. Once the first 20% of the house is paid off it will go down, especially if interest rates get down close to 6% around the same time. I haven't even started payments and I can't wait to refinance.

Anyway, to answer your question, I'd be a lot more comfortable paying about 20-25% of my monthly income on a house payment.

why didnt you do a 2nd loan instead of PMI. or is pmi now tax deductible now?
 

paulxcook

Diamond Member
May 1, 2005
4,277
1
0
Originally posted by: JEDI
Originally posted by: paulxcook
The payment on my house (we're taking possession this Friday) will be about 1/3 of my monthly income. This is really probably the upper limit of where it should be, but that damn PMI is killing me. Once the first 20% of the house is paid off it will go down, especially if interest rates get down close to 6% around the same time. I haven't even started payments and I can't wait to refinance.

Anyway, to answer your question, I'd be a lot more comfortable paying about 20-25% of my monthly income on a house payment.

why didnt you do a 2nd loan instead of PMI. or is pmi now tax deductible now?

It was a credit problem. My credit took a nosedive when I forgot about a CC that I thought was closed. Very, very stupid problem to have. An 80/20 would've been much better, but my stupidity kind of ruined that one for me. :eek:
 

mugs

Lifer
Apr 29, 2003
48,920
46
91
Who cares about being responsible when the government will just bail you out. :|
 

iamwiz82

Lifer
Jan 10, 2001
30,772
13
81
We are at around 20% and I prefer it this way because we aren't living for the house. You don't want to be house-poor.
 

b0mbrman

Lifer
Jun 1, 2001
29,470
1
81
I would feel comfortable with the 200% figure you named.

However, the answer for me will always be no more house than I need.

[Edit] My current amount is tough...I live in one unit of one of the four-unit apartment buildings I own. Just going off 1/4th of the price I paid for the building gives you 86%. The monthly payment (1/4 of mortgage + ins + tax) is 12% of my monthly income

Both numbers should be even lower if what you actually care about is the real effect on my disposable income, considering I earn income from the other three units.
 

vi edit

Elite Member
Super Moderator
Oct 28, 1999
62,484
8,344
126
It's hard to say without taking actual dollars into account.

A $2500 mortgage payment sounds like a lot. But when you are clearing 10k a month in net income that still leaves $7500 to pay for everything else. (25% of net)

When you are only clearing $2000 a month that only leaves $1500 to pay for everything else. (again, 25% of net monthly)

Once you start tossing in the "required" items like utilities, food, car payment, ect, that doesn't leave the second person with a whole lot left over.
 

funboy6942

Lifer
Nov 13, 2001
15,311
395
126
I think people when buying a house need to do is ask themself:

"If sh1t hit the fan, and I had to take a different job, what house payment could I still afford with the credit card bills, and car payments I am making right now"

You may be able to afford it now, but like me, if crap hits big time, can you afford to keep it if it does? I couldnt, lost everything and ended up in a trailer down by the ghetto to keep my family from being homeless. Big time eye opener for me, wish I asked myself this question before I got in too deep and then got laid off at christmas time.

Didnt mean to be a downer, good luck, just be wise, hate for anyone to go through what we have.
 

Gooberlx2

Lifer
May 4, 2001
15,381
6
91
Originally posted by: vi_edit
It's hard to say without taking actual dollars into account.

A $2500 mortgage payment sounds like a lot. But when you are clearing 10k a month in net income that still leaves $7500 to pay for everything else. (25% of net)

When you are only clearing $2000 a month that only leaves $1500 to pay for everything else. (again, 25% of net monthly)

Once you start tossing in the "required" items like utilities, food, car payment, ect, that doesn't leave the second person with a whole lot left over.

Sadly so true. :(
 

Vic

Elite Member
Jun 12, 2001
50,422
14,337
136
Standard is 30% to 40% of gross monthly income for total combined housing expense (mortgage + taxes, insurance, HOA if applicable, etc.) plus residual (meaning leftover) income of at least $1000 each month plus at least $250 per dependent child. All of your bills combined (car, utilities, etc.) should not exceed 50% of gross income.

Otherwise, it's totally a personal thing. Some people balk at a 20% DTI payment while others scream bloody murder because they can't get approved at 60%.

Don't use the percentage of annual income to total loan amount method. That doesn't take into account changing interest rates.
 

PricklyPete

Lifer
Sep 17, 2002
14,582
162
106
It's about 17% last I calculated of our current salaries. We've been paying extra on the second load (10% loan) to pay that more quickly. Once that is payed off... it will be under 15%.
 

PricklyPete

Lifer
Sep 17, 2002
14,582
162
106
Originally posted by: Chaotic42
Originally posted by: FoBoT
my monthly house payment is about 19% of my gross monthly income

If you don't mind me asking, is that a comfortable amount? I'm trying to start researching now, because I want to make a very informed decision and I know *nothing* about real estate.

yes...that is comfortable. We're at 17% and have no problem saving/investing and living nicely (vacations, purchases, etc.)
 

jcuadrado

Diamond Member
Oct 26, 1999
3,300
0
76
Originally posted by: PricklyPete
It's about 17% last I calculated of our current salaries. We've been paying extra on the second load (10% loan) to pay that more quickly. Once that is payed off... it will be under 15%.

obviously, you and your family are doing very well...but 15%-17% isn't the norm..especially here in the more expensive parts of the US like NY, FL, etc.