Financing in Pittsburgh>Question Details

Sharon, Home Buyer in south africa

How does one decide on what to spend on a home? what percentage of a salary goes towards it?

Asked by Sharon, south africa Wed Dec 5, 2007

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I have pages and pages in my book ("Diary of a Real Estate Rookie") about this, but the rule of thumb I give customers is:

If you are conservative and/or have kids, you can carry a mortgage amount of 2x your income.

If you are childless and/or very home-focused, you can carry a mortgage amount of 3x your income.

For most people, being in the middle at a mortgage amount of 2.5x is comfortable.

Note that I am talking "mortgage amount" not "house price."

To give you an example, if you make $100K a year, you can comfortably carry a $250K mortgage.

So if you want a $400K house, you'll have to put $150K down to make that work.

These guidelines work better than a "percentage of salary" rule, because you don't have to get into the whole before tax/after tax discussion -- and they account for the fact that people with kids may have tremendous school expenses.

Alison Rogers
author, "Diary of a Real Estate Rookie"
Insider Real Estate Tips with a Twist of Humor: http://tinyurl.com/2ag28z
Web Reference: http://tinyurl.com/2ag28z
2 votes Thank Flag Link Wed Dec 5, 2007
I agree, a good mortgage lender should definitely advise you on this. If you get a 30 year fixed mortgage, your payment stays the same for 30 years. If you are at a job where you expect to earn more money, you could probably deal with a higher mortgage payment initially based on the fact that your income will increase.

My advice is to keep your mortgage payment as close to your rent as possible. It's ok for the mortgage payment to be a little bit more than your rent, because you still have to take into account the following:

mortgage payment
monthly taxes (these can be written off!)
homeowner's insurance

I'd be careful with mortgage brokers, I've been burnt several times in the past by ones right here in Pittsburgh. Let me know if you need a reference to 2 great lenders I know. What I do is use the both of them at the same time to get me the best rate, in other words, I let them both compete for my business.

The best way to get good mortgage is to:
1. educate yourself on the mortgage process
2. let two lenders compete

Joey Rahimi
joey@brandingbrand.com
1 vote Thank Flag Link Mon Dec 10, 2007
I don't know if there is a "rule" about it. Most people will base it on the monthly payment and try to come close to what they pay for rent or some will go with 1/4 of the monthly income, but it all depends on your personal budget and other expenses. A mortgage broker, a GOOD mortgage broker, will guide you through it by taking a look at your current debt and what it would look like when you add a mortgage payment.
1 vote Thank Flag Link Wed Dec 5, 2007
I recommend you to get in contact with a local mortgage lender, there is a lot involved! I have some good lenders I can refer, DM for detail.
0 votes Thank Flag Link Mon Jan 19, 2015
There are guidelines. Contact a lender
0 votes Thank Flag Link Fri Nov 14, 2014
Perhaps the best way to answer your question is to tell you what the maximums are and you can deicide whether you feel comfortable going to the max. FHA ideally wants your mortgage payment at 29% of your monthly gross income. AND, your payment and monthly debt (school loans, car payments) together should not exceed 41%. For a conventional loan, 28% on payment and 36% for payment and monthly debt. Multiply your monthly gross income by 41% (or 36%), subtract out your monthly debt and the balance is your mortgage payment. You can play with the numbers on my web site (PA). Also, check out the links for 1st time home buyer programs if you're located in Pennsylvania.
0 votes Thank Flag Link Thu Jul 9, 2009
Well the good rule of thumb is one week income for the mortgage payment. But there is alot you have to consider too. What kind of debt you have to start with ex. car payment and credit cards. Plus, how many kids you have. Plus, if you want to have a bigger mortgage or to have spending money for other for socializing and events. You need to sit down and make a budget and take if from there.
0 votes Thank Flag Link Wed Dec 5, 2007
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