[jrose_lee]

Just wanted to ask you wise mamas about mortgages. Dh and I are currently looking to purchase our first home!

Yea! I'm tired of renting. We are not in debt (that is, if you don't count school loans...

: ) and we want to keep it that way so we want to be careful.

In relationship to your annual income, how much should your house be? I had heard somewhere that you shouldn't spend more than 2-3 times your annual income on a home. Um....we would never own anything decent at that rate. (I also have high standards of trying to own a couple acres)

Any thoughts? How much of your monthly budget should a mortgage be? Or how many times your annual income should your entire home cost? Is there some kind of "rule" to follow?

Thanks!

 

[rosie_plus_one]

Most rental agencies look for a 25-33% ratio, and will generally not accept you if the rent exceeds that amount. On Oprah's debt diet they did a pie chart and she allows 30% for house, but that includes any taxes that you have to pay as well as the mortgage.

Both of those numbers assume a percentage for credit card debt, car loans, etc, and if you don't have any of those, you could certainly increase the percentage to maybe 40 or even 50%. But there are other costs associated with ownership over renting, so be sure to budget for that stuff each month.

 

[Meli65]

You can figure that 30% of your gross monthly income is the monthly payment that you can afford (which includes the mortage itself, plus homeowners insurance, local taxes, and PMI if you need it) ... but we do less than that. Honestly, I don't know how people manage with that, esp. if they have car payments and such.

You can do a search on "mortgage calculator" and can get a lot of information that way. Another way to do it is to look at real estate listings on the web in your area -- they usually have calculators on them to tell you what the monthly payment would be (though of course it depends on what kind of mortage you get). For me, I have an idea of how much we can afford to spend on housing right now and don't care to go over it, even if "technically" we can afford more.

 

[rachelmarie]

I've always heard the 30-35% of your monthly income. Ours is more than that, but we also don't have car payments.

One thing I would suggest is to make sure you put money away every month in savings in order to fix anything that might go wrong in your house (like a toilet or leaky faucet). We didn't figure on this and it somehow slipped our minds that there is no landlord we can call to fix these types of problems for us! We are trying to build up a savings account now in order to have money available if/when something comes up.

 

[velochic]

The absolute LEAST amount you can tolerate. Don't go by these percentages you see everywhere. They are designed to make you house poor. That is, once you buy the home you can't afford anything.

Please keep in mind insurance, taxes, PMI (if applicable), furnishing and...

UPKEEP!!

The mortgage companies give you these percentages just waiting for you to default on the loan. They want you to!! They give you the maximum amounts you can borrow, not the reality.

If you want to still be able to enjoy life, I wouldn't pay more than 25% of your NET monthly income. That way you have plenty left over to do things to the house.

JMHO.

 

[LylasMom]

Here in NYC and surrounding areas, I think it's about 30-35% for ONLY the actual mortgage payment, but I was also told to budget another 40% of that amount for repairs, upkeep, insurance, taxes, etc. So, if our mortgage was $2500 a month, we have to figure another $1000 a month for the other things.

 

[SunRise]

Historically, 30% or a 1/3 of your monthly income should be budgetted towards rent or mortgage. Not sure if that included just mortgage or taxes, insurance etc as well.

My mortgage payment and escrow [taxes, pmi, home insurance] works out to be less then a 1/3 of my monthly take home income. I do actually live in a nice/safe "middle" class neighborhood

. The town I live in is quite affordable, but I also didn't buy until I was 10 years into my career and in my mid 30s (and due to other circumstances).

Historically, most couples started with an apartment, then "first home" and worked their way up to a "nice" home as their salaries grew. Now adays people tend to skip buying the "first home" and pay out a higher percentage (50%) or their income to cover their mortgage.

I just advise being sensible! The mortgage calulators said I could afford a mortgage way beyond what I think my means are. As well, the calculators do not include taxes, pmi, maintenance etc! With that said, I do thinking owning is a great investment and very grounding.

 

[Jenn_M]

Our house payment (including taxes and insurance) is 28.4% of our NET pay and about 20% of GROSS pay. I wouldn't want it any higher than that, but I know there are lots of people that much higher housing expenses.

IIRC, you are looking to move to Iowa, right? Depending on where you end up, the housing may be less expensive than you think. Our house was less than 2x our annual pay and it isn't a mansion, but it's not a shack either!

Good luck!!!

 

[njsummer01]

I'm a big Dave Ramsey fan and he says your house payment should be no more than 25% of your monthly take home (net) pay. That's a super conservative estimate, but guarentees that you won't be "house poor".

 

[srain]

I think it depends a lot on your income. Our mortgage and property taxes are an enormous part of our income (around 70%) because our income is so low. (Mostly by choice, luckily!) We'd have a hard time finding a rental, even, that was less than half our income.

I, personally, would not be comfortable getting a mortgage that we could not pay on one income. We qualified for double the one we got (I was working then) but we feel strongly about not wanting to be stuck in jobs or situations that we can't quit without utter financial disaster. This (along with savings)enabled me to up and quit when I felt I needed to without having to leave our home.

I don't know if a lender would give you more than 30% of your income-

 

[mightymoo]

the general rule is that you can *qualify* for a loan which is about 2.5 times your annual salary. But a loan that size will probably leave you house poor.

Our loan right now is 30% of our take home salary and with all the things we need to buy the first year since we don't have them (and a few other expensive choices like montessori school for DD) that is very hard for us to keep up with.

We went with the 'buy the smallest/cheapest house we felt we could live with' philosophy are very glad we didn't buy a bigger house. Our long range plan is to live here 5-6 years and hopefully save some money (not happening yet ) and then start a leisurely search for the perfect house and rent this one out.