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A bit personal I know…

My husband and I are struggling to figure out if the house we’re looking at is within reach for us.

We’ve been APPROVED for a $ 200,000 mortgage (with 20% down—we plan to put a bit more). However, we know that that isn’t necessarily a guideline to go by.

I’ve read that a certain percentage of the monthly income should go to housing. But with these articles/charts I’ve researched they include a lot of things we won’t have (car payments, water bills, cable, high entertainment costs, etc). Please keep in mind we live in a rural area.

I’m a saver and a bargainer and this is purchase would be a bit extravagant compared to our usual purchases. Unfortunately, it’s also the biggest purchase. This home (including mortgage, taxes, insurance) would take about 40% of our monthly income. On paper (with our normal bills-gas, food, electric, etc) it looks good. But with this being out of our comfort zone it’s hard to take the leap.

So…what percentage of your monthly income do you spend? Are you comfortable? I know it’s personal but I think it would be easier to hear others stories.

5 Thoughts on What’s your mortgage story?
  1. Reply
    July 26, 2012 at 1:06 am

    I would be very surprised if a lender would lend you an amount that had payments (mortgage, property taxes, and hazard insurance) that was 40% of your income.

    Currently the federal government loan modification program is trying to get loans down around to 30% of income.

    Recheck your figures since that seems to be out of the range that lenders would lend. Maybe they based that figure on a 5/1 ARM interest rate which would allow you to qualify for a higher loan since the interest rate would be lower.

  2. Reply
    July 26, 2012 at 1:44 am

    Is it 40% of your gross income, or your net income? You should spend 30-35% of your monthly income on housing costs and this includes utilities. I’ve lived with my housing costs at 50% of my take-home before when I was making minimum wage and it was extremely difficult. There was very little to save and if any emergencies came up… it was difficult to cover them. My mortgage is currently 19% of my gross income (about 23% of net income) and with utilities, I’m looking at around 30% of my gross income (this number includes my cable and cell phone as utilities – even though they aren’t necessities). I feel comfortable financially. I don’t have a car payment or any debt (other than the mortgage). I am able to save for my son’s college, for my retirement, and for my emergency fund. I’m able to live without a strict budget and am able to cover the repairs or mini-emergencies that my come along.

    Not paying for cable is a big savings, and not having car payments is fantastic. If you put 20% or more down, will you continue to have an 8-month emergency fund? If not, then you cannot afford this home because if 3 months after you move in… the roof caves in or a water pipe bursts… you might not be able to afford the repairs. I would try to bring the cost down to at least 35% of your gross income. If you do have a large savings (other than the down payment and closing costs) and are truly frugal (and it sounds like you do pretty well), then you might be fine with 40% of your gross income — if it’s “net” income you cannot go this high.

    Are you or your husband reasonably expecting promotions or pay increases in the next year? This can also help your decision. Obviously, we cannot predict the future, but if someone as recently finished school or additional training, or if one of you is relatively new to your field… promotions may be expected. Will you be having children in the future? If so, will you be staying home or will the children go to daycare? Have you thought about those costs? Don’t just think about if you can afford it this year… think about your future plans (at least the next five years). Good luck to you.

  3. Reply
    Emily B
    July 26, 2012 at 2:02 am

    40% of gross or net income? Ideally you look at your front end debt ratio – which is what is takes for you to have the house. Mortage, insurance, taxes, utilities (water, gas, elec) Figure out this ratio on your gross income. It should not exceed 75% and I would personally shoot for a figure closer to 50%. Then figure out your back end debt ratio – which is descretionary payments such as car payments, cable, cell phone, credit cards. The higher this is – the more difficult it is going to feel good about this house. If your front end is 50% and your back end is 15%; that means 65% of you income is going to bills. Which leaves 35% for income tax deductions and extra’s in life – such as eating out and vacations. Can you live with that?

    Personally, I unloaded my house and rented something a house using the governments strategy for more modifications – nore more than 31% of your income should go toward housing payment which includes mortgage, taxes, and insurance. When you rent, taxes don’t apply and insurance is way cheaper – so I get more bang for my buck!

  4. Reply
    July 26, 2012 at 2:28 am

    I say you should have about 10k+ emergency money. Possible bills you can cut is cable tv and land line phone. Also cell phone plan, just do simple rate plan with go card, 10 cents per minute. Cable internet alone is good enough, comcast usually have intro rate if not go verizon intro rate, and then flip back and forth every year. Start using cash back credit card, I would recommend chase freedom – good cash back and 0% APR, you should be fine if just spending on the neccessities. Use online banking to pay your bills to save you stamps. That should be all. With w/e extra money you willl have, just do saving account at bank to get 4.5% APY. GOOD LUCK.

  5. Reply
    My Take on It
    July 26, 2012 at 3:13 am

    40% of your monthly income for your house payment is too high.

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