Home Buying in Westchester>Question Details

Nancy, Home Buyer in Los Angeles, CA

We are first time buyers, is it wise to pay a little less than half our monthly income for our mortage?

Asked by Nancy, Los Angeles, CA Sat Nov 8, 2008

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Based on the past year, if you had the mortgage payment now being contemplated, how much additional would you have saved each month? I see lots of mistakes made by buyers, lack of planning and budget is the most common. What does your budget say you can afford each month while still saving a decent amount?

I linked Freddie’s budget form below, work backwards, start at the end with savings then adjust everything else.
2 votes Thank Flag Link Tue Aug 23, 2011
Dear Nancy,
One third is the recommended amount for a mortgage payment, but there are other issues involved as well. My recommendation is that you work with a reputable loan officer to discuss your fiances before moving forward.
0 votes Thank Flag Link Tue Aug 23, 2011
You will be much better off financially if you stick to not more than 1/3 of your income for a mortgage, insurance, and taxes for the home. That way you will still have money for saving for emergencies. Also you should have about 6 months or more living expenses saved above the down-payment for your home purchase in case you should lose your job, or get sick or hurt, for example. The economy is shaky right now. It is good to buy a home when we are experiencing buyer's market pricing, but don't get into a mortgage black hole that could undo your financial security.

There are some new programs for first time homebuyers that you should ask your Realtor and your mortgage bank about that provide up to $7500 tax credit for you if you buy by this summer -- July 1st if I remember correctly. Maybe that will be extended.

If you just cannot afford to purchase right now, perhaps you could find a rent to buy situation where part of your rent would be applied to the purchase price of the home. Just be sure that you are not overpaying for the house to get this situation. We recommend working with a good Buyer's Agent to assist you -- won't cost you anything usually unless you sign an agreement that obligates you to pay. Shop around to find an ABR and/or CRS agent who will work with you by collecting commission from the seller only. Check either of these designations online at REBAC.com and/or CRS.com. Good luck to you!
0 votes Thank Flag Link Sun Nov 9, 2008
Usually for FHA the most your mortagage can be vs. your income is 54%. It all depends on how many working adults are living in the house and how many expenses you have a month. I had a client that made $5,000 a month but did not want his morgage to exceed $2,100.
0 votes Thank Flag Link Sun Nov 9, 2008
Always buy smart, work with those that truly have your interest. Be ready to walk away from all deals and work with a true professional, someone fulltime in this business. I've got lots of other good tips but let me know if I can assist you more
Web Reference: http://www.centuryside.com
0 votes Thank Flag Link Sun Nov 9, 2008
When I bought my first home, the sage advice at that time is that my house payment should not be more than 1/3 of my salary. I must admit, it was manageable.

Years later, on another home, my payments were half my salary. And that was a real struggle. It gave rise to being "house rich but cash poor."

So you should determine what your lifestyle would be if half your salary goes towards a house (factoring in your tax deductions). What can you give up, what can you live with? Look at what your monthly payments would be --- is it do-able? Will you still be able to build up a savings as a reserve account for emergencies, including repairs to the house?

Good luck....
0 votes Thank Flag Link Sat Nov 8, 2008
Hello Nancy. That percentage would be within the acceptable range but the most important question is whether you are comfortable with the payment being close to 50% of your income. As to whether it is wise, I would suggest you consult with a financial advisor or an accountant who could go over in detail what your plans and goals are. Good luck Nancy!
0 votes Thank Flag Link Sat Nov 8, 2008
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