Comments on: What Percentage of Income Can You Afford for Mortgage Payments?

By: Travis

Travis — Thu, 15 Dec 2011 14:27:00 +0000

Agreed. Dave’s scenario could work if someone made a quarter million dollars a year, but how many American’s make that kind of money? You’ll pay just as much in rent these days as you will on a mortgage so what is the point in doing so when a mortgage at least retains some value? According to Dave a person making just over $100,000 can only afford $180,000 home. Depending on the area, this could buy you a decent three bedroom home or a terrible apartment in the slums. Either way you would think that the top 15% could afford something a little nicer. For me, someone who only makes $50,000, I would only be able to afford a $100,000 home. Unless the house is foreclosed in a high crime neighborhood I will not find a house at that price, believe me I’ve looked. Rent is a waste; I can’t find an apartment under $800 dollars.

What it really comes down to is preference and responsibility. Some would rather prefer living in a nice neighborhood with good schools for their children while sacrificing other things like new cars, pricey vacations, and eating out. Others would rather have the new cars, pricey vacations, and eat out every other night while living in a cardboard box. It doesn’t really matter which one you choose as long as your happy.

By: tom isenbach

tom isenbach — Mon, 12 Dec 2011 22:47:27 +0000

Agreed. I can’t tell you how ridiculous this 20-25% of your post tax figure is. If real estate prices were more in line with what they were in the 1980′s this MIGHT be possible. People that make $60,000(for example) per year in St. Louis do not want to live in complete filth in an undesirable area. By following this ridiculous rule of thumb, that is what you would get if you made around that amount per year. I’d say if you do not have a lot of debt, 20-25% of your PRETAX income is just fine. You are not going to have a financial crisis and you will still be able to take your pick from many desirable neighborhoods.

By: Luke Duke

Luke Duke — Thu, 22 Sep 2011 05:47:19 +0000

I am currently struggling with this problem as well. My wife and I have been married for 3 years and have YET to get into a home due to constant apprehension on what we should/could spend and unstable employment. The strain on our relationship comes from NOT having a home and having to rent my father’s basement for 3 years longer than we intended. We are now at a point where we are financially ready to buy a home but the 25% of net income rule is virtually impossible in the Chicagoland area. Without having to buy a dump that we will have to sink thousands into anyway, I figure we can handle a mortgage that is roughly 30% of our GROSS income. We have about 10-12% down payment and no debt whatsoever. I’ve been over the math hundreds of times, am I crazy for thinking this is possible or am I making a smart investment?

By: John

John — Thu, 08 Sep 2011 02:39:50 +0000

My recommendation is that one should stay at or below 31% of their monthly take-home (net) pay for all of the following combined expenses: mortgage, real estate taxes, homeowner’s insurance, car payment, and car insurance. By doing this, and eating out very infrequently (including packing lunches for work and/or school), one can invest plenty into their retirement accounts and save for necessary home repairs/improvements, etc. In addition to all of the above, one should have at least 7-12 months of net pay in a savings account for emergencies.

By: Pamsthoughts

Pamsthoughts — Mon, 18 Apr 2011 19:13:33 +0000

I felt this way and still struggle with the same dilemma. As a former Realtor and a home seller
dont be fooled by its a great investment for resale. My husband and I fell into the same scenario and thought the home we currently have would be better for resale and statistics in the future, in a similiar setting as to what you described.
Boy were we wrong, we even bought at the “low” price point in a declining market. Our home after one year is worth 60,000 less currently than what we paid a year ago.
We currently have it for sale due to a job transfer for my husband’s job and even with relocation assist with his company we are having to take a substantial loss.
I learned my lesson and the next home we buy will be smaller and in a neighborhood that most people can afford to buy in. I will not make the same mistake twice. The cash flow is much more important than living in a upscale neighborhood to us now.
Anyway good luck with what you decide but please dont base your decision based on resale potential, nothing is guaranteed in this market .

By: elisssabeth

elisssabeth — Tue, 11 Jan 2011 03:33:25 +0000

Au contraire…A larger house DOES make us happier. Last year we moved our 4 person, 2 dog family FROM an 1800 sq foot bungalow in a densely-packed blue collar neighborhood with narrow, unwalkable streets and no sidewalks, TO a 2900 sq ft house with quiet neighbors, plenty of space between the houses, wide enough streets to safely walk with our dogs and kids…and the lowering of everyone’s stress level is palpable. We are no longer telling the dogs to get out of the way ALL DAY LONG, or trying to do laundry in a closet in the one hallway where everyone has to walk to get anywhere. Blood pressures are definitely down. That’s worth $ to me. LOTS of $.

By: Aspirin

Aspirin — Wed, 13 Oct 2010 23:48:26 +0000

Well, I’ll stir the pot a little bit too. I think it’s kind of funny that pretty much all the comments on here are how to justify more debt and be less conservative with our spending, yet we’re in the middle of an economic crisis brought on largely because too many people wanted that house with the pool next to the golf course and didn’t have the means. Their yearnings exceeded their earnings, but they just had to have it and here we are. I’ll stick to the conservative side of finances. 25% is a big plenty for me, but my wife and I don’t need status symbols to be happy, so I guess we’re lucky there. Jobs and earnings are fragile, undulating things, but debt is always there and doesn’t care if you have a bad month! I think a lot of headaches and even divorces could be avoided by being conservative and putting a little extra in the bank.

By: RQ

RQ — Thu, 26 Aug 2010 01:58:24 +0000

agreed Michelle!

By: Jeff

Jeff — Mon, 23 Aug 2010 22:35:36 +0000

“but in the Midwest, even with a $20k/yr job, you could get a house for this much.”

I hope you’re exaggerating. I live in St. Louis, MO and 25% of your post tax monthly income on a 20k per year job would be about 360 bucks. That wouldn’t get you a studio apartment in the ghetto much less a house. Unless you’re talking about the poorest poedunk rural area in the country, $360 a month will not cover a mortage payment, taxes, and homeowners insurance and PMI. Unless maybe you’re planning on buying an “outhouse”.

By: Michelle R

Michelle R — Mon, 09 Aug 2010 05:33:33 +0000

Unfortunately we bought at the top of the market in Pennsylvania, our 2600 sq ft home was 512,000 now worth 475,000.
I just figured out that we are at 38%, due to my husbands job change/cut in pay. But after discussing (should we sale?) we realized we lost a good amount of equity already and decided to calculate 10% as an investment. (15% is standard percentage for investing) and the other 5% into 401 until I return to work.

This is an area we plan to be here for the long term, watch our kids grow old here and sale it when we retire. Also, when I go back to work we plan to pay the mortgage off in less than 15 years.

I’m know I’ve rambled but the point is the %’s are just guidelines and you have to do what works for you and meets your long term goals.