greenleaf
Senior Member
From: A reality test for would-be home buyers
"His basic guideline: The monthly cost of your mortgage and property taxes, plus the monthly portion of your annual home insurance bill, should not eat up more than 25 to 30 per cent of your monthly net pay.
Sure, you could push it higher. In fact, Mr. Schwartz said some clients of his agency have housing costs as high as 50 per cent of their take-home pay. “That means they’re eating Kraft Dinner to be able to afford the house they’re living in. They’re making sacrifices somewhere else.”
Capping housing costs at 30 per cent will keep some people out of the housing market, which is fine. They can rent and keep saving to build a bigger down payment. In the housing market, fools rush in.
Those who follow this guideline in buying a home will enjoy three major benefits, the first being that they’ll have room to save for retirement and for their kids’ post-secondary education. Mr. Schwartz figures a goal of saving 10 per cent of your take-home pay is realistic if you cap your housing costs at 30 per cent.
Another benefit of the 30-per-cent ceiling for housing is that it gives you enough financial slack to absorb higher costs in the future. Higher interest rates could push up the cost of your mortgage on renewal, for example. Mr. Schwartz said rising household utility bills are also an issue.
A final benefit of the 30-per-cent rule is that it leaves you with enough money to cover all the usual living costs, as well as a reasonable level of additional debt. "
"His basic guideline: The monthly cost of your mortgage and property taxes, plus the monthly portion of your annual home insurance bill, should not eat up more than 25 to 30 per cent of your monthly net pay.
Sure, you could push it higher. In fact, Mr. Schwartz said some clients of his agency have housing costs as high as 50 per cent of their take-home pay. “That means they’re eating Kraft Dinner to be able to afford the house they’re living in. They’re making sacrifices somewhere else.”
Capping housing costs at 30 per cent will keep some people out of the housing market, which is fine. They can rent and keep saving to build a bigger down payment. In the housing market, fools rush in.
Those who follow this guideline in buying a home will enjoy three major benefits, the first being that they’ll have room to save for retirement and for their kids’ post-secondary education. Mr. Schwartz figures a goal of saving 10 per cent of your take-home pay is realistic if you cap your housing costs at 30 per cent.
Another benefit of the 30-per-cent ceiling for housing is that it gives you enough financial slack to absorb higher costs in the future. Higher interest rates could push up the cost of your mortgage on renewal, for example. Mr. Schwartz said rising household utility bills are also an issue.
A final benefit of the 30-per-cent rule is that it leaves you with enough money to cover all the usual living costs, as well as a reasonable level of additional debt. "