Is there a general rule of thumb when buying a home regarding how much you can spend?

Question

ex. - you can spend two times your yearly income, or anything of this nature.

Answer 1

The generally accepted underwriting guideline used to be no more than 28% of your income should be devoted to housing costs, which include Principal, Interest, Taxes, and Insurance. And no more than 38% should be devoted to all fixed debt, including credit cards, installment loans, and housing expenses. Remember, the income used is before tax.

In recent years most conservative A-paper lenders have gone up to 38% for housing and 48% for total debt. Some lenders have gone higher, but this has translated into many people getting into money trouble. (23 sub-prime lenders have gone out of business in the past two months. There's even a website, https://www.ml-implode.com, with an Implode-O-Meter that tracks this.)

Those are the numbers. You need to decide how much you'll be comfortable paying.

But here's another way to look at it: How much is your current rent/mortgage? How much are you saving each month? Add those two figures together. Now, how much less would you be okay with saving to buy a home? That's your answer on how much to spend on a home.

For example, if your rent is currently $1000, and every month you wind up $750 ahead, you might decide you're okay only being $250 ahead at the end of the month and be comfortable with a $1500/month payment.

Don't go into a purchase thinking you will stop spending money like you presently do. That will last for a couple months, and then you'll be back to spending at your present level. If you needed that money to meet expenses, you will find yourself in mortgage trouble. (Kinda like not marrying the man today to change his ways tomorrow.)

If you are unable to presently save money, then the amount you are spending on rent/mortgage may actually be too high. Nobody ever got into a tough money spot because they purchased too inexpensive a home.

Good luck.

Answer 2

I think you could probably get a loan for almost any amount because there are a lot of shady lenders out there willing to rip you off. However, like the other person said above, the rule of thumb is that your monthly mortgage payments should not exceed 1/3 of your income and some economists believe it is best if it doesn't exceed 1/4 of your monthly income. Good luck and don't get yourself into an adjustable rate mortgage (ARM) or anything like that.

Answer 3

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Answer 4

Here's a good one..

your total monthly debt payments including mortgage shouldn't be more than 55% of your monthly income. This is called the dti ratio (debt-to-income).

I wish you the best,
Rommel J. Mijares
CA mortgage advisor

Answer 5

Your mortgage payment shouldn't exceed 28% of your gross (pre-tax) income, is what I've heard.