What Portion of My Income Should I Spend on a Mortgage?

November 28th, 2017

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What portion of my income should I spend on a mortgage? Deciding on how much mortgage you can afford is very complicated with several things to consider. Before you plan to spend the maximum amount you’ve been approved for, consider what you feel comfortable with. And don’t treat your home purchase like a zero-sum game. Consider spending a sufficient amount to buy enough house to keep you happy for a longer period of time. This is due to the hefty transaction costs of real estate.

What debt-to-income ratio is allowed?

Most of the mortgage agencies such as Fannie Mae, Freddie Mac, and FHA and VA will allow you to spend up to 45% of your gross monthly income on a mortgage payment and your other existing debts. Other debts would be things such as credit card payments, school loans, and car loans.  Some people may think that is an outrageous amount and choose to be more conservative. Other people living in high-cost urban markets may not find that to be enough.

How to decide how much money to borrow

Just make sure to consider the following:

  1. Don’t make an emotional decision.
  2. Don’t make a speedy decision.
  3. Get pre-approved by an experienced mortgage lender you trust who is well reviewed.
  4. Remember that your housing costs stay relatively fixed into the future while your income goes up. What may seem expensive today may seem quite reasonable in five years and downright cheap in 10 years.
  5. Don’t pick an arbitrary limit not to exceed. For example, assume your rent is currently $2,000 a month. Don’t arbitrarily decide you only feel you can afford $2,200 a month. What if a mortgage of $2,800 a month is going to give you an extra bedroom, a parking spot, and a much better neighborhood. As long as you can qualify for the higher amount consider spending more and reaching for the higher figure. You’ll be happier while you own the home, you may stay there longer, resulting in lower transaction costs over time.

Now maybe you’ll have a better answer when someone asks, “What portion of my income should I spend on a mortgage?”

You’re the best judge when it comes to your budget. But to understand the true costs of homeownership I’m happy to talk with you. To contact me to discuss your mortgage scenario, mortgage rates, or other mortgage questions, click here to schedule a call or you can email me directly.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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