Loan and income ratio

Discussion in 'Buying & Selling Real Estate' started by Rosyrain, Feb 18, 2015.

  1. Rosyrain

    Rosyrain Senior Investor

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    I am looking to buy a home in the next couple of years, but do not know how much of a loan I can afford to invest in. What is the typical loan to income ratio that a person can afford to pay, keeping in mind that there will be utilities and other bills to pay?
     
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Much of that will depend upon your own income levels, lifestyle, etc.

    Basic things like gas, groceries, and utilities tend to be much easier to manage for someone making six figures than someone making less than $50k. And if there are a large number of children or other dependents in the household, it also changes things.

    As to what sort of debt to income ratio you need to stay below to be approved, that may vary somewhat from institution to institution. If you're paying more than 40% of your gross income or 50% of net income to other bills besides a mortgage or rent, I'm guessing that you may find it hard to get a loan.
     
  3. missbishi

    missbishi Well-Known Member

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  4. ally79

    ally79 Guest

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    The rate calculators are a great tool to use before you ever set foot inside a bank. When I was growing up people would say that your house payment or your loan payment shouldn't take more than one full paycheck for you to cover it. I am pretty sure that is impossible to do anymore, at least in my current income bracket.
     
  5. crimsonghost747

    crimsonghost747 Senior Investor

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    This is a very personal question and only you can answer your situation. At the moment I use 50% of my income to pay my mortgage... one of my parents is currently paying around 15% since that is better for that particular situation.

    You need to make a proper monthly budget. How much you spend on everything. And I mean everything. Then looking at that, you can quite easily figure out how much mortgage you can pay per month.
     
  6. Rosyrain

    Rosyrain Senior Investor

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    I just tried the calculator and looks like I can get a lot less of a mortgage than what I was hoping for based on the outcome of my information...so depressing. It looks as though I am going to have to work a lot harder at getting some other residual income so that I can put down a bigger down payment. Very useful, thanks for the link.
     
  7. Guardian

    Guardian Member

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    The general recommendation is to pay roughly 25% of your income for housing. Everyone's situation is different, but the easiest way is to just use how much you pay now. If you can afford more, then you can pay more. The mortgage calculators are useful with playing with loan amounts, interest rates, etc. Just make sure not to forget PMI and any other fees that will get added on. The fees and other necessities will sneak up on you, so be very careful with those.

    As for you not being able to afford what you're wanting, always remember the more you pay up front, the more you save in the long run and it drives the monthly payments down. Reducing excess spending and saving away any extra money adds up and can help contribute to that down payment. It's always better to pay as much as you can earlier, as you save a lot more in the long run.
     
  8. crimsonghost747

    crimsonghost747 Senior Investor

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    When playing around with the interest rate in the calculators it's important to remember that at the moment the interest rates are just about as low as they can possibly get. If you get a 20 year mortgage it's almost certain that at some point the interest rates will be quite a bit higher than at the moment. Always prepare for that so you don't get caught off guard!
     
  9. Rosyrain

    Rosyrain Senior Investor

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    I want to put at least 30 k down on the house when I go to buy, but I have no earthy idea how I am going to manage to get that much money saved. Seeming as how we are closer to 40 years old than 30, the thought of a long term mortgage scares me. I am just going to have to work really hard at saving over the next couple of years and maybe find some more freelance work on the side.
     
  10. crimsonghost747

    crimsonghost747 Senior Investor

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    How much are you planning on spending for the house? And how much do you have saved up now? And seeing as you say "we" I assume you are buying the house with someone else, which really should make the mortgage a much shorter one if both of you are working full time.
     

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