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LINewbie
Tigger the the Rescue!
Member since 8/08 5647 total posts
Name:
LB
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Why is Your Mortgage Based on Gross, not Net Salary?
DH and I thought we'd be OK wth this mortgage (esp.when the mortgage guy said they didn't even need my fin. info, that DH had enough to qualify), then we double checked the numbers and the mortgage is based on his gross ncome! Half of that gets taken out in taxes!i!! We've figure that getting paid 4x a month (we each get paid every other week) we'll spend 2 1/2 or 2 1/3 of our monthly take home just for the mortgGE!!  That doesn't leave much for bills and etc. DH makes twice what I do but only gets paid a few hundred more which is why I thought we were ok.
Why don't they calculate it based on net? 
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Posted 11/22/08 12:10 AM  |
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Prudential Douglas Elliman Real Estate
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
that's what the bank based it on
personally- I would figure ou what I was comfortable with myself
you can google mortgage calulator and play around with the rate and the amount
and it will show you the monthly payment
don't forget taxes, insurace and all the other fun stuff that goes along with owning a home
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| Posted 11/22/08 12:34 AM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
It's easy.
Because you pay your taxes and mortgage interest with pre-tax income. That's gross income.
The only part of the housing payment that gets paid with net pay is your principal. And principal payments aren't really considered "payments" in the traditional sense because all you are doing with those payments is adding to your equity. It isn't lost money like mortgage interest is.
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| Posted 11/22/08 2:05 AM |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by ave1024
It's easy.
Because you pay your taxes and mortgage interest with pre-tax income. That's gross income.
The only part of the housing payment that gets paid with net pay is your principal. And principal payments aren't really considered "payments" in the traditional sense because all you are doing with those payments is adding to your equity. It isn't lost money like mortgage interest is.
 bottom line is that you have XXX amount net take home pay and that's what you have each month to pay that mortgage payment, utilities, food and entertainment, home and car maintenence and other debts. That's what an individual needs to calculate to see if they can afford a mortgage with net pay. The greedy banks started playing with numbers using gross income to make it look like you could afford more house than you really can. You may get some tax breaks with a mortgage (is that what you mean by paying with pre-tax income?) but you still need to look at what's coming in and what's going out on a monthly basis to know if you can afford what you're purchasing.
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| Posted 11/22/08 7:51 AM |
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by KLSbear
bottom line is that you have XXX amount net take home pay and that's what you have each month to pay that mortgage payment, utilities, food and entertainment, home and car maintenence and other debts. That's what an individual needs to calculate to see if they can afford a mortgage with net pay. The greedy banks started playing with numbers using gross income to make it look like you could afford more house than you really can. You may get some tax breaks with a mortgage (is that what you mean by paying with pre-tax income?) but you still need to look at what's coming in and what's going out on a monthly basis to know if you can afford what you're purchasing.
I know what you mean- when we were mortgage shopping I used Lending Tree as part of my research and accidentally put in take-home pay. A few people called me to follow up and asked about that and when I told them it was take-home, they told me I could get a lot more. But we knew exactly what we could afford based on the actual money in our pockets.
It makes me wonder if that's how a lot of people got into these risky mortgages- we only wanted a fixed rate and I think the only way we could have borrowed more would have been to do an adjustable.
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| Posted 11/22/08 8:09 AM |
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siffleuse319
LIF Infant
Member since 8/08 189 total posts
Name:
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
It's a discriminatory system that we live in, but when you are a homeowner, you pay less tax on the dollar than non-owners. When you own a home, 99-90% of your mortgage payment is interest. Interest is tax deductible. Secondly, you can deduct all of your real estate tax. So, the thinking is, when you fill out your W-4 for your paycheck withholdings, you can increase the number of dependents you claim to balance out the interest and tax. Increasing the number of dependents means MORE money in your net pay. I own a small home and have a great deal of tax write offs from work. Each paycheck, I claim 9 so that I have more money in my pocket to pay the bills. When I file taxes in April, of course I only claim 1, but I always get a little bit of money back in my tax return. So...bottom line, when you own a home, you can increase your net pay by decreasing your payroll tax deduction, thereby keeping more of your "gross" pay for you. I hope this helps....Check out this IRS link to help you determine how your gross salary can be subject to less tax when you own a home. It will help you figure out what you can claim as withholdings each pay period throughout the year based on your individual circumstances.
IRS Withholding Calculator
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| Posted 11/22/08 8:18 AM |
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MegZee
My bunny
Member since 5/06 8777 total posts
Name:
Meaghan
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by siffleuse319
It's a discriminatory system that we live in
How is it discriminatory?
It is a formula that all banks use - but that doesnt mean you should follow it.
Put together a spreadsheet of expenses that YOU have - figure out what you can afford to pay each month.
There are places you can go that are FREE (LI Housing Partnership is one) that will give you counseling that is not a lender.
I was pre approved for $200K MORE than I paid for my house and I am glad I didn't spend that. DH and I wanted to be able to go on vacation and put $$ in the bank.
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| Posted 11/22/08 8:51 AM |
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SweetestOfPeas
J'taime Paris!
Member since 3/06 32345 total posts
Name:
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
didn't you know how much the mortgage payments & taxes would be per month?
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| Posted 11/22/08 10:13 AM |
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jax1023
LIF Adult
Member since 3/07 1165 total posts
Name:
Jackie
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Because when you own a house, you can claim an additional deduction on your withholding and reduce the amount of taxes they take out every month. So you can bring home more each paycheck when you own a house.
Also, you can write the mortgage interest off on your income taxes.
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| Posted 11/22/08 10:46 AM |
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belladi
LIF Adult
Member since 9/06 1011 total posts
Name:
diana
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Never mind what they say, you have to go by what YOU ARE COMFORTABLE spending.....
And more than half of your income monthly should not go towaards your mortgage...
Message edited 11/22/2008 11:23:17 AM.
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| Posted 11/22/08 11:22 AM |
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siffleuse319
LIF Infant
Member since 8/08 189 total posts
Name:
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
How is it discriminatory?
I meant that the IRS system that affords homeowners cheaper taxes on the dollar compared to their renting counterparts, is a form of discrimination. Why should a homeowner and a renter be subjected to paying less income? I get the whole "contributing to society thing", but I still find it discriminatory. Plenty of people choose to rent, and they are not afforded the same financial benefits of homeowners. That's all I was saying.
Message edited 11/22/2008 1:30:03 PM.
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| Posted 11/22/08 1:28 PM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by siffleuse319
It's a discriminatory system that we live in, but when you are a homeowner, you pay less tax on the dollar than non-owners. When you own a home, 99-90% of your mortgage payment is interest. Interest is tax deductible. Secondly, you can deduct all of your real estate tax. So, the thinking is, when you fill out your W-4 for your paycheck withholdings, you can increase the number of dependents you claim to balance out the interest and tax. Increasing the number of dependents means MORE money in your net pay. I own a small home and have a great deal of tax write offs from work. Each paycheck, I claim 9 so that I have more money in my pocket to pay the bills. When I file taxes in April, of course I only claim 1, but I always get a little bit of money back in my tax return. So...bottom line, when you own a home, you can increase your net pay by decreasing your payroll tax deduction, thereby keeping more of your "gross" pay for you. I hope this helps....Check out this IRS link to help you determine how your gross salary can be subject to less tax when you own a home. It will help you figure out what you can claim as withholdings each pay period throughout the year based on your individual circumstances.
IRS Withholding Calculator
Yes. We did this as well. DH claims 2 and I claim 3 on our paychecks but 1 at tax time. I end up with about $750 more a month in my pay net.
We do it conservatively because we have side businesses that we have to pay taxes on. From a cash flow perspective, this works for us.
We still sat down with all of our income and expenses and felt comfortable with the numbers, but that's why they figure it on gross income.
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| Posted 11/22/08 2:01 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by KLSbear
bottom line is that you have XXX amount net take home pay and that's what you have each month to pay that mortgage payment, utilities, food and entertainment, home and car maintenence and other debts. That's what an individual needs to calculate to see if they can afford a mortgage with net pay. The greedy banks started playing with numbers using gross income to make it look like you could afford more house than you really can. You may get some tax breaks with a mortgage (is that what you mean by paying with pre-tax income?) but you still need to look at what's coming in and what's going out on a monthly basis to know if you can afford what you're purchasing.
That's not the bottom line because you take home MORE PAY when you own a house. That's just the way the system works.
Mortgage and interest is paid with PRE TAX money. Why do you think 401ks are so great? Because you save with PRE TAX money.
Yes you should spend what you feel comfortable with. But to answer your question the calculators are based on gross in come because you pay taxes and insurance with GROSS income.
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| Posted 11/22/08 5:58 PM |
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Cheeks24
Living a dream
Member since 1/08 8589 total posts
Name:
Cheeks
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
That's the way everything is figured out. It SUX!
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| Posted 11/23/08 8:46 AM |
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sj-girl
Happy Family of 4
Member since 5/08 5654 total posts
Name:
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
What oyur realtor did with us, was he never told us what we were approved for, he asked us what would be comfortable with paying a month and only took us to see those homes. After we found our office, he then told us what the mortgage company approved us for. I would NEVER want a mortgage for what they said we could afford.
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| Posted 11/23/08 11:40 AM |
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LINewbie
Tigger the the Rescue!
Member since 8/08 5647 total posts
Name:
LB
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Ok, so how do we change the amount of dependents so we get more take home pay? Do that mean we'll owe at tax time? I have it set up now so i always get a refund at tax time. And I want that to keep happening - I'd rather get less per check instead of trying to find a lump sum in april. Can we change all that stuff now or do we have to wait until the new year? Is that done through taxes or through our jobs?
How is mortgage and interest paid with pre tax money? Does that come out of our paychecks too? I'm confused about that. All of this stuff makes me so confused!
We took a mortgage we thought we could afford, not as much as we were approved for, but with the taxes and whatever stupid fees it'll stretch us. Just for the record.
Message edited 11/24/2008 3:57:18 PM.
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| Posted 11/24/08 3:56 PM |
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Kara
Now Zagat Rated!
Member since 3/07 13217 total posts
Name:
They call me "Tater Salad"
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by LINewbie
How is mortgage and interest paid with pre tax money? Does that come out of our paychecks too? I'm confused about that. All of this stuff makes me so confused!
NO. Mortgage AND interest are NOT paid with pre-tax money. Mortgage interest (interest only) is tax deductible. Principle is not deductible. (Granted, the majority of your payments for the first several years of your mortgage will be interest, but some will still go toward principle.)
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| Posted 11/24/08 4:07 PM |
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NinaLemon
It's a boy!!!
Member since 10/07 6453 total posts
Name:
Jeannine
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
To be completely honest I wouldn't worry about how the banks figures out what it feels you can afford. You should figure out for yourself what you can afford. The bank knows that if things get tight, the last thing you are going to let slide is your mortgage.
When DH and I bought our home, we were told we could afford more than twice what we were actually willing to spend, had we done that we wouldn't be able to put any money in savings, we'd would not have anything for entertainment and forget about improvements to the house or emergencies! Unexpected events would have to go on credit!
Don't listen to the bank, do your own budget and determine for yourself what you can afford.
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| Posted 11/24/08 4:27 PM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by LINewbie
Ok, so how do we change the amount of dependents so we get more take home pay? Do that mean we'll owe at tax time? I have it set up now so i always get a refund at tax time. And I want that to keep happening - I'd rather get less per check instead of trying to find a lump sum in april. Can we change all that stuff now or do we have to wait until the new year? Is that done through taxes or through our jobs?
How is mortgage and interest paid with pre tax money? Does that come out of our paychecks too? I'm confused about that. All of this stuff makes me so confused!
We took a mortgage we thought we could afford, not as much as we were approved for, but with the taxes and whatever stupid fees it'll stretch us. Just for the record.
You should talk to your accountant. We did that first to figure out where our break even point was. I would rather have the money all year than give the IRS a free loan of my money. We took a mortgage we could comfortably afford even though we were offered much more.
I changed my allowances through HR. You can do it anytime. Check with your HR dept about it.
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| Posted 11/24/08 4:45 PM |
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lululu
LIF Adult
Member since 7/05 9511 total posts
Name:
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Re: Why is Your Mortgage Based on Gross, not Net Salary?
Posted by Beth1210
that's what the bank based it on
personally- I would figure ou what I was comfortable with myself
you can google mortgage calulator and play around with the rate and the amount
and it will show you the monthly payment
don't forget taxes, insurace and all the other fun stuff that goes along with owning a home
But also keep in mind that you will get a significant tax deduction for mortgage interest and property taxes. Although you might want to be conservative that way you are leaving yourself a little extra cushion!
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| Posted 11/24/08 7:39 PM |
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