Percentages is how we would "Qualify" you for approvals (not meant to guide you)with figures like Morgan's below, but you should never make you decisions on something like that. One of the contributing factors for the mortgage mess and foreclosures we saw for years all started, with mortgage lending based on that premise. Back then the question was 'How much can I afford to buy, what's the Maximum payment?' So instead of responsible lending, lenders would let you hang yourself by maxing out your debts vs your income.
The banking industry qualifies off your Gross income, the 1st thing everyone forgets is Uncle Sam is going to take 20%(+plus depending tax bracket) plus 5% for the state of Georgia. So out of 100% your already minus 25% if we qualified you in the old days at 50% you would only have 25% to live off of and hopefully put savings away. This may not be a problem for high wage borrowers but low to middle income families could quickly find themselves in trouble. Check this out...
High wage example -
120k / year = 10k per month minus 30+% (Higher tax bracket) leaves 70% if we let them credit qualify with all their Credit reported payments and a new house at 50% that leaves 20% to live off and save. in this case that's 2,000/ month this could be manageable.
Low wage example -
24k / year = 2k per month minus 20+% (Lower tax bracket) leaves 80% if we let them credit qualify with all their Credit reported payments and a new house at 50% that leaves 30% to live off and save. in this case that's $600/ month this could easily be a problem.
Here's a list of typical basic living expenses outside of credit cards, car payments and Mortages.
Electric 80-120/m(have friends with 300-400/m electric), water/sewer 40/m, Home Gas 50/m(some winters that could be over 200), Auto Gas 200+/m(if you live close or have a very fuel eff car), Auto Ins 100/m (depending on car and DL record), Medical/dental Ins 150-200/m(for an individual, families may exceed 500/M), Cable/Internet 140/m
Just using the lower of these items alone, We are over $850/m and we haven't bought groceries, entertained ourselves, saved, put money aside for eventual home repairs ect.... UPSIDE DOWN (basically they end up living on credit cards)
And this is why after 6-8 years of irresponsible lending customers not only lost their homes but racked up incredible amounts of debts, credit cards ect.. leading to the largest Bankruptcy and Foreclosure wave the World has ever known.
This is why I would never start a home ownership request of with a percentage based platform.
The 1st question I ask every customer is what do you want to keep your Mortgage payments at? This is usually followed by an answer like "Well my rent is 900 and I really don't wanna go much higher than that....." most of the time this is a figure that you have already been paying, had to budget for in the past ect....
Best Solution is tell us what you want for a mortgage payment and let us work backwards. You will always be happy and far less likely to end up as one of the statistics.
I hope that this has answered your question. Please feel free to call and ask anything additional.
Senior Mortgage Consultant
Cornerstone Mortgage Group
6151 Powers Ferry Road NW
Suite 610 Atlanta GA 30339