The housing expense (mortgage, tax and insurance) should be less than 28% of gross income. The funny thing is - the repairs is not part of this equation. I found it costs about $1500 to $2000 a year to keep the house in good shape. Don't forget the roof repairs, appliances break down, and the paint job etc.
Form the renter perspective, there is no property tax, no serious repairs and reduced insurance premium - does it mean you can get "more" as a renter?
The total housing expense and minimal debt payments should be less than 36% of the gross income. The funny things is - the calculation is based on "minimal debt payments". If one continues to make minimal payments while pile on more revolving and other forms of debts, then 36% back end can easily become 40% or higher.
These 28%-36% rules lead me to believe that "saving plan" is not part of the qualifying. One should leave a few percentage for charitable/tithe or saving for 401K or retirement plan. To address the potential home repair costs, and increase of adjustable interest rates - I suggest a 28% rules for everything, because most of young families are loaded with car loans, student loans already. Having children in the near future, the debt burden or other financial obligations can easily reached over 36% threashold.
80,000 yearly gross income @ 28% = 1866 per month for housing and debt obligation
1866 - 250 = car payment #1
1716 - 250 = car payment #2
1466 - 400 = student loans (a wild guess)
1066 = mortgage, insurance and prop tax
Assuming 30 years, 5% interest rate, 20% down, $960 of home owner insurance, property tax rate of 2.7% and assessed value is same as purchase price. Then,
This applicant(s) qualifies for a home mortgage of $120,000 - home value of $150,000. Interestingly, the debt obligations in this example - $900 is about 13% of income. Um.. May be it's best to payoff student loans, or reducing transportation expenses before buying that house!
pictures: 2010 Poland Krakow
plugs: 782sa.blogspot.com
