mortgage question; how much house can you afford?
May 18, 2007 · Print This Article
glen asked:
i was reading on “how much house can you afford” and it was saying that banks determine how much you qualify to borrow by adding all your debts up and your monthly mortgage payment and it needs to equal “36%” or less of your monthly income, is that gross, or bring home?
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i was reading on “how much house can you afford” and it was saying that banks determine how much you qualify to borrow by adding all your debts up and your monthly mortgage payment and it needs to equal “36%” or less of your monthly income, is that gross, or bring home?
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Josh Dunaway has been a certfied Realtor in the suburban Chicagoland area for over 20 years. Aside from starting his own real estate company, he also owns a mortgage company as well.
It’s gross. You shouldn’t go by what they tell you. You should go on what you feel you can afford realistically. A bank will always try to give you too much money. That’s their business. You need to figure out how much you want to spend. Of course you need to take into consideration the real estate market. Don’t trust the appraisals because I have found them to be garbage. For example, I bought a townhouse in Charlotte and the appraisal was higher than what I paid for it. My father questioned it and the seller said, well, if you can find someone willing to pay that price, I’d be interested to know. What a joke! This was in 1999.
Most responsible financial people will suggest that you keep it around 25% of your income. Whether you base it on gross or net largely depends on the difference between the two.
If you base it on gross, and you have a lot of deductions/spending accounts/etc. that have a larger than normal effect on the actual net amount, then you’re going to be more strapped for that monthly payment.
If you base it on your net income, then you’re closer to your actual spending capacity. Also, if you base it on your net income, if you no longer need some of those deductions, etc. you can convert the extra net income into a savings plan, which is fundamental to establishing any degree of financial security.
Also, it’s in your best interest to try and establish a your initial mortgage with a local, reputable company. Ultimately your mortgage could get sold to another company (it happens all the time), but it’s in your best interest to do business with someone you can look in the eye, and who has good references within the local community.
Remember… the internet is full of predators, all whom claim to be your best friend. And getting hooked into some predatory lending scheme is a terrible mistake to make.
Good luck!
gross income. Another quickee way to determine is you can afford it is 3 times your yearly gross salary. That amount is the close to the biggest loan you can afford.
That is you gross income, but for many people that is way too much. It really depends on you personal situation. You need to look at your own spending to see how much you can afford to pay while still putting some away for a rainy day.
Hi,
Checkout for some useful info and tips related to your query. Good luck!
It is dependent upon many factors, your income, debts etc. Here is a calculator to fill in the blanks and know for yourself