mortage costs to percentage of income

[gdc]

It appears there is much conflicting data regarding what is the reccommended amount of percentage of income one should dedicate to cost of home ownership.
The numbers are sometimes in net figures and sometimes in gross figures and vary greatly depending on if it is from sales source or investment source.

What are the reccomended ranges?

[powayseller]

28% of gross income for PITI (principal, interest, tax, insurance). 33% of gross for all debt payments (student loans, credit card, auto loans). Plan on spending more on repairs and improvements. After we bought our first house, we were dismayed that at the first rain our roof leaked in many places. The home inspector had not gone up on the roof (and I found out later that home inspectors are notoriously lazy about getting into attics, crawls spaces, and up on roofs). We had barely scraped together the down payment for the house, so we had no money for the roof, and had to borrow against our 401(k).

Lenders will let people spend much more than 28% though. I think lending has become so lax, you can spend 50% on PITI, or they will do 33% PI and not include the TI. But if you spend more than 28% of your income on housing, how will you afford the repairs, any emergencies, retirement saving? I think that’s why the debt ratio has gone up so much. The largest expense that people have is their mortgage, and if you can just keep your mortgage low, you have so much money left over for other investments.

I read a book about a family in Iowa living on $18K/year for a family of four. They can manage because they live in a very simple small home. They reduced the largest expense, the mortgage, to about $500/month. I think that’s very smart. Personally, I don’t see the point of spending a large percentage of income on a house. Financial independence is achieved by spending less than one earns, and investing the difference.

[FormerOwner]

Along these lines, I’ve come across a few studies that show that happiness has more to do with DOING things than with owning things. A lot of the things that we do that are enjoyable don’t cost any money, by the way.

Another thing I read somewhere that I think is very pertinent is that the cost of anything is the amount of TIME you give up in exchange for it. If more people thought about that, I don’t think they’d be blowing so much money on frivolous “luxuries” when they could work less and have TIME instead.

[masayako]

TIME is very luxury item we often place very little value on.
FormerOwner, I agree with you totally.

Just another “FormerOwner”,

Masayako

[Author]

Posts