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khoiquach98 | I read that house to income ratio is 28%, debt to income is 36%, why it's so low, what is the other 64% for? |
I am looking to buy a house.
I have some credit card debt, income about 60K a year, how much home price can I afford? Is it around 180K?
Still I don't understand about only 36% allow to pay all expense, why can I use the other 64% to pay for the mortgage?
Thank you.
Additional Details
Thank you all for answering. That's gross income? Then I forgot just tax alone should take another 25% from the other 64%.
:) |
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Rush is a band
 |
I don't know about you, but after social security taxes, medicare taxes, federal taxes and state taxes as well as my 401(k) contribution and my contribution to my health care costs, etc., I am only bringing home about 60% of my gross income in the first place.
Using 36% of my gross to cover debt payments is significantly more than half of my take home (60% of my take home). Now I still have to eat, still have to put gas in my car, pay my electric bill, etc... You can't use all of it!!
good luck! |
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f*ck yahoo, i'm doing google
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umm, food, taxes, living life |
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Real Estate Guy
 |
SAVINGS
retirement
house upkeep
electric, water, gas, cable, phone
income taxes
health insurance
life insurance
car payment
car insurance
car upkeep
food
clothes
fun
What you don't want to be is house poor. Stay with the 28%. |
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robert w
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the fact is toooo many people insist in over extending their money in the chase of the 'house myth'.
when u look to buy a house don't buy into the realtors mortgages peoples egos of what u can afford.
what u safely want is a FIXed rate 30yrs or less, PMI if u need (no loans to cover PMI).
the monthly payment =s ONE week of Take home pay for P&I (principle interest).
2nd week can go for utlities transportation upkeep maintenance taxes insurance and worst one - 'empty house syndromn'.
3rd week can go for food , outstanding DEBTS.
4th week can go for retirement accounts so u will not have to eat cat food. some can go for nice vacations on cash only.
these are real world number not theroy not what banks want to tell u.
house can be a blessing but many times it becomes a dead skunk around ur neck.
looks pretty but - it stinks. |
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Rachel
|
The other 64% is needed for car insurance, car, heat, electric, water, groceries, gasoline, retail/entertainment, emergencies, house repair, medical costs, savings, etc.
An estimate I heard is that you can afford a house about twice what you make, another time I heard 2.5 times what you make, so that would put you in the 120-150k range.
I believe that the 28% estimate includes not only the cost of the mortgage payment but also the homeowners insurance and property tax. |
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chatsplas
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Because then you don't have enough for other expenses, such as a car, utilities (more for a house), food, clothing, entertainment.
First you need to make a budget, find out just what you are spending your income on. You might be shocked at some of the categories.
Secondly, you need savings, a downpayment, an emergency fund, and retirement fund.
Thirdly you need good credit. This means paying your bills on time, paying down your credit cards, eliminating some credit cards.
One of the most common and worst problems is for a first time buyer to buy MORE house than they can afford. These guidelines exist because of the experience of millions of individuals. Houses cost more than apartments, you have mortgage interest and real estate taxes, plus upkeep, maintenance, repairs.
If you take every available penny for your house and become disabled, sick, lose your job--you have a serious problem, immediately. |
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Scanz
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Paying incidental bills not credit related such as car insurance and utilities, saving and investing, emergency expenses (broken car, funeral). You can exceed your debt to income ratio if you want, I think 36% is a healthy guideline financial advisors give so you don't live paycheck to paycheck. |
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Marko
 |
Personal circumstances vary quite a bit, but let me give you a reasonably typical scenario:
Ratios are based on gross income. After deductions for social security, medicare, federal & state income taxes, and any other deductions, let's assume you get to keep 65% of your gross income. That's $39,000.
If you spend 28% of your gross income on your house payment, that's $16,800 per year. Other debt (car, credit cards, etc. at 36% total DTI) would be $4,800 per year. And let's assume expenses for food (including restaurants & at home) of $400 per month ($4,800/yr) and utilities of $300 per month ($3,600/yr). That would leave you with $750 per month for everything else. And that's assuming you put nothing toward savings.
Even if you don't feel the need to save for retirement, $750 per month can easily be eaten up by other expenses like tuition, day care, a second car, etc.
That's not to say you personally couldn't afford to pay more. I personally spend over 40% of my income on my house. But lenders like to leave a reasonable margin for you to be able to pay their loan back. Hope that helps. |
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Randy R
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FOOD, BEER AND WILD WOMEN!!! |
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Ross
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The banks don't want to you to go over a certain % of your income for a mortgage. They have their guidlines. Right know it is especially true. Different banks may look at things differently, try another bank. |
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Sahara
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You have other bills. You need the 64%. (utilities, groceries, transportation, savings, taxes, etc.) The money goes quick. |
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