Posted on June 4, 2009 - by admin

How Much Mortgage Can You Afford To Pay?

If you’re planning on buying a new home, you should figure out how much you can afford to pay each month before you start looking. There are three basic rules to follow when determining just how much of your income should go toward monthly mortgage payments.

The first rule is the rule of 28, where your monthly payments should not be more than 28 percent of your total monthly income before taxes. This is the basic rule that is most often followed and is even used by lending institutions to decide whether you can afford to make the payments.

The next rule is the rule of 32, just as with the first rule, you figure 32 percent of your income to arrive at an affordable payment. However, instead of just the mortgage payment, your property taxes and insurance combined should not exceed 32 percent of your gross monthly income.

The third rule is the rule of 40. With this rule all of your monthly debts including a mortgage, credit cards, student loans, insurance, property taxes and car payments should not exceed 40 percent of your gross income. If for example, all these debts minus the mortgage total 10 percent of your income, then your mortgage should only account for 30 percent.