“Your mortgage payment should not be more than 25% of your take-home pay and you should get a 15-year or less, fixed-rate mortgage … Now, you can probably qualify for a much larger loan than what 25% of your take-home pay would give you. On the flip side, debt-despising Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25% of your after-tax income. You may be able to afford a housing payment that is 35% of your pretax income today, but what about when you have kids, buy a new car, or lose your job? The Conservative Model: 25% of After-Tax Income Remember: The more you spend on your home, the less you have available to save for everything else. But don’t just assume that because the bank approved it, you can afford it. They are two very different things. That may tempt you to take on more home than you should. So when you obtain mortgage pre-approval, lenders will likely approve you for a loan amount with payments of up to 35% of your pretax income. Let’s remember that even in the post-crisis lending world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I would hardly call 35% of your pretax income conservative, let alone ‘truly conservative.’
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Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45% of your pretax income, but no more.” “If you’re determined to be truly conservative, don’t spend more than about 35% of your pretax income on mortgage, property tax, and home insurance payments.
In an article on how the mortgage crash of the late 2000s changed the rules for first-time homebuyers, the New York Times reported: What Others Say The Traditional Model: 35% or 45% of Pretax Income What percentage of your income should that housing budget be? It all depends on who you ask. Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property taxes and all housing-related insurance - homeowner’s insurance and PMI. Consider Your Total Housing Payment, Not Just the MortgageĬonsider Your Total Housing Payment, Not Just the Mortgage.
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