Percentage of income to pay on mortgage?

I know this varies for everyone, but does anyone know what the typical percentage of your salary you should pay for a mortgage, either including or not including taxes.

We do not have any debt right now, however we have a baby due in May and will probably need a new car within a year or two. I am hoping to be able to get the ball rolling with a house before the baby is born.

TIA

Re: Percentage of income to pay on mortgage?

I thought the general rule of thumb was that your mortgage payment should not account for more than 40% of your monthly household income. I may be wrong though.

Re: Percentage of income to pay on mortgage?

Honestly, I think the problem with using a "formula" is that everyone has different obligations. I would NEVER spent 40% of my income on my mortgage payment. But then again, I have to pay board for 2 horses every month -- most people don't. Some people want to vacation twice a year in Europe. Some people have 6 kids in private school.

What you need to do is figure out a comfortable mortgage payment that fits into YOUR lifestyle and stick to that budget when buying a home. (Talk to your mortgage lender who can give you pretty accurate monthly payments - just make sure you're taking insurance and taxes into account.)

You need to create a detailed budget before you decide what you can afford for YOU. Track your income / expenses for a few months (include any savings). Leave a cushion for expenses for your child when he/she is born, too. THEN decide how much you can afford to spend every month. Work with your mortgage lender to figure out what range of house prices / taxes you should be looking at. Leave a bit of a cushion if possible, though, b/c interest rates are subject to change before you lock them in.

ETA - our mortgage payment is only 15% of our monthly take home.

Message edited 1/27/2009 10:34:16 AM.

Re: Percentage of income to pay on mortgage?

Our mortgage and taxes for the house we are buying will come to about 25% of our monthly take home with both of us working. I wanted to feel secure managing on one salary in case something happened to one of our jobs in this economy. Our is due in June, so I also wanted to not worry about expenses for the baby. We were very conservative with the house we bought--we could have qualified for a mortgage worth $250,000 more, but I would rather feel secure with our finances.

Message edited 1/27/2009 10:17:29 AM.

Re: Percentage of income to pay on mortgage?

Just remember that it is calculated from GROSS not NET... so keep in mind that you'll have less to spend on it than they'll tell you

Re: Percentage of income to pay on mortgage?

I've always heard 30% (for mortgage + taxes) of your gross income.

Other factors play into this though, like the amount of student loans, consumer debt, car loans, etc that you have.

Our percentage is much lower than that but we are preparing for the possibility that I may stop working after a 2nd child.