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The historical "best practice" max home loan ratio was 3x your gross income. However, that was at a time that interest rates were significantly higher. Therefor

by runamok 13y ago

The historical "best practice" max home loan ratio was 3x your gross income. However, that was at a time that interest rates were significantly higher. Therefore the amount you are paying now over the life of the loan is smaller and thus more manageable. This assumes you make a large enough down payment that you don't need private mortgage insurance. However, this presumes you will have 20-30 years of (more or less) uninterrupted prosperity which I think is unlikely. People also do things like rent out a room or two to give themselves more of a cushion. Here are some calculations using this site: http://www.mortgagecalculator.org/ http://www.mortgagecalculator.org/ I assumed a loan of 250k, 30 years, with no property tax or PMI since this is just for comparison. Right now rates are ~3.5% so over 30 years you would pay $404k and $1122/month. Over the past 30 years the average interest rate has been 7.45% so over 30 years at that you would pay $626k and pay $1739/month. So a very significant difference.

freehunter 13y ago
I guess I'm either making significantly more than people in my area who are my age or I must spend a lot more, but there's no way I could afford a $1122/mo house payment with my student loan bills and a small car payment. I mean, I could afford it, but I would be incredibly uncomfortable every month knowing that one missed week of pay meant a bill that wasn't going to be met that month. I did at one point rent a room from someone who was making $35k/yr who had just bought a $90k house and couldn't make the payment. It wasn't much cheaper than an apartment and the person made it clear almost every day that I was only welcome in the house because I paid more than half of his mortgage every month. He was an ass and I had no rental contract with him, so I left. His house got foreclosed upon a couple months later; I was going to buy it from the bank but he had trashed the entire inside and ripped out chunks of the exterior wall. Anyway, this was just a long winded story to say yeah, I can see what you're saying about renting a room to pay the mortgage. It would still make more financial sense to just buy a house you know you can afford.

by runamok 13y ago

freehunter 13y ago

I guess I'm either making significantly more than people in my area who are my age or I must spend a lot more, but there's no way I could afford a $1122/mo house payment with my student loan bills and a small car payment. I mean, I could afford it, but I would be incredibly uncomfortable every month knowing that one missed week of pay meant a bill that wasn't going to be met that month. I did at one point rent a room from someone who was making $35k/yr who had just bought a $90k house and couldn't make the payment. It wasn't much cheaper than an apartment and the person made it clear almost every day that I was only welcome in the house because I paid more than half of his mortgage every month. He was an ass and I had no rental contract with him, so I left. His house got foreclosed upon a couple months later; I was going to buy it from the bank but he had trashed the entire inside and ripped out chunks of the exterior wall. Anyway, this was just a long winded story to say yeah, I can see what you're saying about renting a room to pay the mortgage. It would still make more financial sense to just buy a house you know you can afford.