How Much of My Income Should Pay for a Mortgage?
Your income plays a major part in how much home you can afford. When using a formula to calculate that amount, it is important to consider such factors as property taxes and insurance to come up with an accurate picture. Experts, such as the staff at Bankrate.com, say you also should consider both your total income and your debt when deciding on a mortgage payment you can afford.
Other People Are Reading
-
Percentage of Income
-
Many lenders have a standard rule regarding the percentage of income that's used to determine mortgage approval and affordability. Typically, they require that your mortgage payment not exceed 28 percent of your gross income (before taxes).
Revolving Debt
-
Most lenders prefer that your revolving debt, such as credit cards, car payments or student loan payments, not exceed 10 percent of your gross income. This means that the total of your mortgage payment and revolving debt payments should not be more than 38 percent of your income. Keep in mind that some lenders have stricter guidelines, while a government loan may have more lenient requirements.
-
Geography
-
In certain parts of the country where real estate prices are higher than average, these ratios can be adjusted for potential buyers. However, it is important to remember that exceeding what you can afford per month for a home loan is probably not the wisest choice.
Considerations
-
When calculating that 28 to 30 percent of your income will go toward the costs associated with a mortgage payment, it is also important to factor in upkeep expenses as well as unforeseen expenses. You should have a solid financial cushion in case of emergencies.
Misconceptions
-
Many homeowners believe that lenders will approve loans up to four times their annual salary, but this is no longer the case. Loan restrictions have tightened and most lenders will approve home buyers for only three times their annual income.
Benefits
-
While you may not appreciate the idea of loan limits, they're in place to help you know what you can afford and help in the recovery from a difficult real estate market.
-
