January 26th, 2019 12:20 PM by Jackie A. Graves, President
The most basic research on homebuying will inevitably lead you to
this general fact: houses are one of, if not the most, expensive purchases
you’ll make in your lifetime. There aren’t many other opportunities to drop
hundreds of thousands of dollars in one sitting… or over 30 years.
This is why
setting a house budget is crucial in the homebuying process. Even more modest
purchases, like a new car, require examining the bank account, debt and income
situation. With a home purchase, this kind of serious financial evaluation is
everything if you are to have any hope of success.
the 36% rule
The 36% rule is
the tried-and-true house affordabiltiy tip. Most financial advisers agree that
people should spend no more than 36 percent of their gross income on total
debt, this includes mortgages, credit cards, student loans, home insurance,
medical bills and the like.
where you live, your annual income could be more than enough to cover a
mortgage or it could fall short. Knowing what you can afford can help you take
financially sound next steps. The last thing you want to do is jump into a
30-year home loan that’s too expensive for your budget, even if you can find a
lender willing to write the mortgage.
If your monthly
income is $5,000 per month then your mortgage payment shouldn't exceed $1,400
per month. The calculator below allows you to plug in all the essential data to
produce a budget estimate for how much house you can afford based on your
income, down payment, and other expenses.
much of my income should I spend on my house?
Financial experts generally advise that no more than 28 percent of
your gross income should go to a mortgage payment. This means if, after
expenses and debt, your monthly income is $5,000 per month then your mortgage
payment should not be more than $1,400 per month. That said, everyone has
different financial goals and lifestyle needs. Some folks choose to underspend
on their house and use the extra money for investments or travel, while others
might need more space due to family size. Be sure to factor in your long-term
goals so you don’t get stuck with more house (and mortgage) than you need.
Many factors go into a lender’s decision to give you a mortgage.
Among them are your credit score, debt-to-income ratio, employment history and income. Qualifying income is not
just employment salary but other sources such as alimony, royalties, Social
Security and trust income. Lenders will tally total income, subtract your debt
and use the remainder to determine how much you can afford. Lenders generally
use the 28/36 rule for underwriting. This rule states that a household should
spend 28 percent or less of their gross income on total housing expenses,
including things like HOA fees, home insurance and property taxes. Likewise,
total household debt -- which includes everything from your mortgage to credit
card bills and student loans, shouldn’t exceed 36 percent.
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