How to REALLY know how much house I can afford?
February 9, 2007
Atlas asked:
OK I know this has been asked many times, but the main thing I want to know is why do they say X% of your GROSS pay should go to housing instead of X% of your NET pay? I live in an expensive area, and spending around 26% of my monthly GROSS pay on mortgage+insurance+taxes (no PMI) is the only way I can buy any kind of house. If I used the 30-40% of NET pay formula I wouldn’t be able to afford a shack. So what is the story? I don’t want to be house poor, but the amount leftover after tax/medical/dental/401k deductions is much different than the gross income!
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OK I know this has been asked many times, but the main thing I want to know is why do they say X% of your GROSS pay should go to housing instead of X% of your NET pay? I live in an expensive area, and spending around 26% of my monthly GROSS pay on mortgage+insurance+taxes (no PMI) is the only way I can buy any kind of house. If I used the 30-40% of NET pay formula I wouldn’t be able to afford a shack. So what is the story? I don’t want to be house poor, but the amount leftover after tax/medical/dental/401k deductions is much different than the gross income!
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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.