What percentage of your net income should you spend on all your bills including mortgage, car, insurance, etc.

Question

Live in New York, just about to buy a house and am wondering what other people are spending on all their bills as compared to their salary. I'm figuring about 55%-60% of my net income will go towards all my bills once I buy this home. That seems crazy to me but just figured I'd get a consensus from other people.
Thanx.

Answer 1

For financial solvency, one third of your income is the general rule of thumb for rent/mortgage. Utilities can vary widely and 60% for rent/mortgage and utilities does not seem high to me, especially in an urban environment where they cost of living is high. With housing still overinflated most people do not meet the one third requirement and pay close to or above 50% of their salary on rent/mortgage alone. I think if you are comfortable with your own budgeting and plan ahead that is what is most important.

Answer 2

As a fellow New Yorker I know how expensive it is to live here. Spending 50%-60% of net income is easily a norm. Many people spend more like 80-90% of net income here to survive. I spend around 50% on all my bills and save the rest.

Answer 3

Yes actually that is about right. Now you could pare that down a bit by over time. But most importantly realize this...... when you were renting the money you paid was just gone. Now the money you spend on a mortgage is going into the first step to financial security.... a house. Sure things might be a bit lean for a bit but we all go through that at first. You might have to not get a new car for a while, eat out as much and watch a few dollars here and there but it will be well worth it.

Answer 4

Most lenders look at your monthly credit bills more than anything. The number is in the 32% - 37% range (some will let you go as high as 40%.) They count only your minimum payments for this number.

This is for credit cards, mortgage, insurance, proerty taxes, auto payments and such. Get as much of these paid off before getting a home loan as you can. It is not how much credit you have but how much you are using that they look for. Make all payments on time.

This will leave you with about 60% or so to pay utilities, food, and other week to week or monthly bills.

Answer 5

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Answer 6

Help yourself - you can check your quotes in internet for example here - CHEAPTOINSURE.INFO

RE What percentage of your net income should you spend on all your bills including mortgage, car, insurance, etc.

Live in New York, just about to buy a house and am wondering what other people are spending on all their bills as compared to their salary. I'm figuring about 55%-60% of my net income will go towards all my bills once I buy this home. That seems crazy to me but just figured I'd get a consensus from other people.
Thanx.

Answer 7

I'm a mortgage broker and have been practicing for 20 years. General rule of thumb is no more than 45 to 50% of your gross income should be exceeded. This ratio of debt to income is loosely based upon "verifiable" debts. "Verifiable" applies to all montly debts on your credit report or public records (e.g. child, spousal, or family support). This ratio limitation is highly regarded as a good guage of affordability. Now, however, if you have a history of a caviar taste with a McDonald's budget, then common sense will have to guide you. Remember that you will gain in tax benefits by becoming a home owner, so net income will increase over the year. You can adjust your W9 exemptions based upon predicted benefits. Your best bet is to consult with your accountant or simply plug in the numbers in any tax software program to see potential benefits.

Answer 8

that sounds about right - then after going out to eat, a movie once in awhile, sprucing up the house and grounds, shoveling snow, keeping a car in good operating order, etc., etc., etc. - you'll either feel broke or be broke - just like the rest of us - by the way - i do wish you GOOD LUCK

Answer 9

Gee, it must be nice for you to be doing so well.
I and most of my friends spend almost ALL of our pay on bills and personal needs. Many folks I know are working, but are still only a paycheck away from destitution.
I've heard it said that you should spend no more than 25% of your pay on rent or mortgage. HAH! Whoever thinks that anymore most be a friend of Mollie Orshansky from Poland, who came up with the model for the cost of living index. Our cost of living formula for the last 40 years has been based on life in Poland during the Cold War? Yes.
In 1963, an eastern European immigrant named Mollie Orshansky, who was working over in social security, came up with it. Food was the most costly living expense where she came from. Food doesn't account for one-third of a family's budget. Housing is more expensive than food, here in the U.S. But that's what our cost of living is based on. Pretty stupid, I think.
So, unless you're really raking in the bucks, then expect to spend A LOT more of your income to live in New York.

Answer 10

lenders and even real estate brokers that will "qualify" you (they shouldn't, they should leave that part up to the lender even though they know how to do it) HAVE TO USE gross, not net income. why? because some folks use 5% of their gross and some use 20% of their gross, anywhere in between 1% - 20%, to put into an IRA. some people work in jobs that have their own retirement fund, so they don't pay SS tax. and so:

15 years ago and before then, because income was more stable and because people did not have such huge credit card debt and payments for cars and school, the rule of thumb that a lender used was 28% of your gross monthly income (gmi) to pay only for the PITI of a mortgage, i.e. (ha ha ha):

1. Principal (balance after down payment);
2. Interest (the lower the better, and fixed is better than ARM);
3. Taxes (real estate taxes, per year); and
4. Insurance on the house for the bank's interest in case it falls down to the ground, which (hehehe) only happens the day after you close on it!!!

tip: buy a homeowner's insurance policy that is not only the minimum coverage required by the lender! buy one that will cover unusual losses too, like when a major rainstorm took down our gutters and we had to get a loan from the federal emergency loan program since we didn't have adequate, personal, coverage.

AND THEN: the lenders said that 33% of your gmi was for the PITI of a mortgage (PITA, assessments instead of insurance, in condos) PLUS your long term debt. LT debt means that if you only pay the minimum due each month on anything, it will take you over six months to get it down to zero.

and so back about 15+ years ago, the 28/33 ratio was what most lenders used to qualify you for a mortgage.

today, what with both spouses working two jobs each while the poor kids play xbox games while mom or dad cooks up those pre-made dinners, quite processed and unhealthy too, just to pay for all those toys bought on credit, in order to keep up with the joneses...

the lenders will now allow you to use up to 35% (!!!) of your gmi for just the house! and they will also let you have the PITI/PITA + debt ratio set way up to 43%!!!

i HOPE you do not have to put out THAT MUCH of your monthly gross income to get a house and pay your bills!!!

tip: if you want a brand new car (which loses at least 1/3 its price--"value"--the moment you are off the car lot), or new furniture, or new computers, or anything new that leads to long term debt...buy it AFTER you buy the house. PLEASE.

fyi: it was really true when i was in grade school (i am in my low 50s now) that it was reasonable and highly probable that you would use your NET monthly income to do this:

1. put 1/4, or one week, into savings (ha!);
2. put 1/4 towards the roof over your head;
3. use 1/4 of it to pay all utilities, including phone (not true with cells and landlines and faxes today, is it?);
4. use 1/4 for food and entertainment...like going to the playboy club, also doable back in the 60s and 70s, when we all had a lot of disposable income!

just try to do that today! the teachers never even tell the kids these days how to budget their money. no wonder they use the cash register machine to know how much change to give!

i hope that you try to get your house on the 28/33% ratios instead of anything higher.

i do not want you to be "house poor," like way too many people nowadays--some of them trying to sell the houses they can no longer afford to pay on due to their job going overseas.

if you need me to tell you the secret of how to save on the total amount of $$$ paid over the life of the mortgage, as well as lowering the number of years you pay on it, therefore raising up your equity, write me a specific question on my email address that is on my profile.

okay, 'nuff said!

happy house hunting in this FANTASTIC buyer's market (get a free buyer broker AGENT to represent your interests, P-L-E-A-S-E)!

And may you think always that your happy home is not an "investment," since that is not for the home, but that it is the place you feel relaxed in after a hard day's work, hopefully, at only one job.

GOOD LUCK, AND MUCH HAPPINESS TO YOU!!!