What % of income for the house? (and other bills)

The wife and I are looking to purchase a home, but we are having a problem with the budget, I hope someone can give me some advice.
We keep disagreeing as to how much things should cost. (in terms of debt vs income) She thinks I am being too conservative.

We make about the same, so to make things easier, lets say we each put in 50% of the total income.

How much (percentage wise) should the mortgage and all other bills be?
I'm thinking there are 3 types of bills that needs to be paid every month:
1. Mortgage
2. real estate tax
3. non mortgage - internet, phone, cable, electricity, gas, car insurance, food/groceries (am I missing anything from the non mortgage group?)

So, my coworker (he lives in North Carolina) told me that he managed to get bills 1-3 to the point where it only takes up 50% of his and his wife's income.
He said this is how it should be...in case something happens to 1 of them, then the other person can still continue taking care of the bills.
While they are both working, then the other 50% goes into savings.

My wife thinks thats not reasonable for NY because of the higher costs here.
She thinks its ok for all bills to be about 80% of income.
But that seems HUGE to me.
Where is money for the kids college, any potential medicial bills, vacation, Christmas, car repairs, home repairs, etc...going to come from then?

A lot of online places say that bills should not exceed 35% of your gross income.
That 35% gross income equals about 50% net income (I think). And thats not just mortgage, thats overall debt.

Lets play around with some numbers for monthly payments: (I'm making these numbers up)
500k mortgage - $3,400
Real Estate tax (assume its 12k a year, which is very possible in LI) - $1,000
Cable/Internet - $150
Electricity (guess) - $150
Gas (guess) - $150
Cellphones - $150
Total = $5,000

Thats NOT even including - groceries/food, car stuff, etc.

So to be 50% of net income, you have to bring home AT LEAST $10,000 a month!!

What do you all think? What should the percentage be about?

Thank you

Re: What % of income for the house? (and other bills)

That's pretty much how it breaks down except my heating costs are much more but my mortgage and taxes are less.

So yes, household expenses are about 50-60% of take home before food and anything else.

Re: What % of income for the house? (and other bills)

i would factor in food costs as well. $5000 per month is a good estimate of all expenses. Consider daycare costs if kids come which could add at least $1000 per month, per kid.

With 2 kids in daycare plus our mortgage and taxes we are between $4000 and $5000 per month, not including any other expenses i.e. electric, water, food, cable...



35 to 50 percent seems resonable. 80 percent leaves you with nothing in the event of any emergency.

Message edited 12/15/2011 4:01:59 PM.

Re: What % of income for the house? (and other bills)

We (FH and I) are looking for a home as well and some bills you forgot are - your homeowners insurance - around here can be about $1800-$2000 typically, factor in flood insurance premiums also if you are in a flood zone, cost of water - although I have read in many posts on here that water is the cheapest bill you will pay - no more than $25 a month and that seems excessive.

Non-Mortgage - do you guys like to go out to the movies, dinner, vineyards, broadway shows, etc. Figure out how much a month you do things like that. Another expense that people forget about are other peoples birthdays/weddings/communions/holidays etc, so if you are a gift giver average maybe at least $100 a month for those expenses.

Dry cleaning, stamps, cleaning out the gutters, decorations for the house, landscaping, etc etc. The list really can go on...

Hope that helps a bit :)

Re: What % of income for the house? (and other bills)

If you haven't already, I think you should talk to a mortgage lender about your financial situation to see what you could even qualify for (they'll look at your debt-to-income ratio, among other things). They can break down things in terms of what your monthly payment at each price point.

And then maybe you can talk to your accountant/financial planner to try to figure out how what makes sense for you.

I think you need to think about not only where you are today, in term of income, but where you may be down the road. When my husband and I bought our house, I was working at a large law firm as an attorney, but I knew I wouldn't stay there forever. So we bought a house that is half of what we could qualify for, but it was a smart decision, because I changed careers a couple of years later and took a significant cut in my income. I have customers who are both working today, but know that one of them will likely stop working when they have children, so they need to factor that into account. Just something to think about...

Personally, I think the percentage of income to be applied toward home and home expenses per month should be somewhere in between what you and your wife are thinking. I think the guideline is that no more than 30% of your gross monthly income should go to mortgage (principal and interest), real estate taxes, and homeowner's insurance. But I think you are being overly conservative by trying to make that payment, PLUS utilities, car expenses/insurance, etc. no more than 1/4 of your gross monthly income (less than 50% of one your incomes).

Re: What % of income for the house? (and other bills)

>Blu-ize
So yes, household expenses are about 50-60% of take home before food and anything else.
>

So, once you add in food and other stuff, then you're paying out like 75% of your total income.
To me, that seems like a lot.


>Century 21 Dallow - Christine Braun
>I think you should talk to a mortgage lender about your financial situation to see what you could even qualify for
>

We got a pre-qualification up to 800k. And I think thats way too much for a house.


>But I think you are being overly conservative by trying to make that payment, PLUS utilities, car expenses/insurance, etc. no more than 1/4 of your gross monthly income (less than 50% of one your incomes).
>

I didn't say 25% of our gross.
I said that my coworker got all his bills to equal 50% of gross...and I think thats a good strategy. but the wife doesn't think its possible for NY.


>I think the guideline is that no more than 30% of your gross monthly income should go to mortgage (principal and interest), real estate taxes, and homeowner's insurance.
>

Im pretty sure the guideline (from what I read online) says it should be about 35% of your NET.
Which I think is weird, because its harder to calculate then.
Who knows how much is going to be left after taxes, etc.
I think they should base it off gross income.

based off the calculations in my first post...some rough numbers equal 5k a month.
IF that was 50% of gross, then you would have to make 10k a month gross.
and like LIGirl2012 pointed out, theres a lot of stuff I missed in the expenses.

Re: What % of income for the house? (and other bills)

You are smart for telling your wife what the true expenses will be. 80% is much too high! I think its better to be conservative- my rule of thumb is, "if you or your spouse lost their jobs would at least 1 partner have the ability to float the entire housing expense EVERY month without resorting to food stamps or outside help?". My husband and I prob qualify for a house in the 600-700k range but tnat doesnt mean we will actually get a mortgage for that amount..i wouldnt be able to sleep w that worry....

Re: What % of income for the house? (and other bills)

the rule of thumb % wise that banks follows is
28% GROSS for mortgage, property taxes & insurance and then 36% GROSS for all other debts (car payments, student loans, cc payments etc). That does not include food, etc.

What we did was created a budget with every penny we spend and backed into a mortgage amount. (currently, our mortgage pmt is about 17% of our gross, and we live pretty comfortably and have 1 DD in daycare).

Re: What % of income for the house? (and other bills)

In reading all the replies, the 28%/36% is what I have read/heard most places. So, I was surprised when our mortgage broker told us the banks consider a 45% TOTAL debt (mortgage + everything else) as 'healthy'. This is probably very area specific and our goal is to follow the 28/36 'rule' but our broker was very clear that the bank would approve us for an amount that would put us at up to a 45% (of gross income) total debt.

Re: What % of income for the house? (and other bills)

You forgot to add in homeowners insurance which can be about $125 monthly and unless you're putting 20% down you will most likely be paying PMI or MI. That is mortgage insurance which you will pay till you're 20% vested into the mortgage. That can be between $250-$500 depending on the price of the loan.

Re: What % of income for the house? (and other bills)

I wish that my mortgage, bills, and debt only added up to 50% of our income. It's WAY more than that in our case.

Re: What % of income for the house? (and other bills)

Posted by Hofstra26

I wish that my mortgage, bills, and debt only added up to 50% of our income. It's WAY more than that in our case.

Re: What % of income for the house? (and other bills)

>Meaghan729

So the 28% for mortgage and 36% for others....is that:
28% + 36% = 64% of gross for ALL bills.
or is it
36% of gross for ALL bills (the 28 is included in the 36...so its actually only 8% for non-mortgage type stuff)


>MandJZ

45% of gross seems (to me) HIGH.

*slight rant*
I hate how everything is done in gross income.
because I don't care how much gross I am supposed to have....I only see the amount that makes it into my bank (which is net)

For example:
if you make 100k and put down 90k (lol, just an example) for 401k.
Then obviously you cannot put down 45% or even 30% of GROSS for bills.
You can only put down at most 10% of gross.
But if you look at it from a net point of view, then you can still put down 30% of net.
to me, it just seems easier to calculate using net, since thats how much money you really have in your pocket.
*end rant*

Anyway...I think (just a guess), 45% of gross is probably like 70% of net (taking into account tax rate and so on)


>MaZz
Its prob safe to assume its like that in many households on LI.
>

So what do you think is the average percentage on LI?


Thanks everyone!

Message edited 12/16/2011 11:49:49 AM.

Re: What % of income for the house? (and other bills)

Re: What % of income for the house? (and other bills)

Re: What % of income for the house? (and other bills)

Posted by MaZz

Posted by Hofstra26

I wish that my mortgage, bills, and debt only added up to 50% of our income. It's WAY more than that in our case.

Its prob safe to assume its like that in many households on LI... Between pay going down and expenses going up , it's nearly impossible to be able to live comfortably

Re: What % of income for the house? (and other bills)

It depends on where you purchase on long island. There are huge price and tax variations depending on town you are buying in. I have a feeling numbers are over 50 percent for the best areas of Nassau county. We are about that but I am staying home with our children. We could have bought in cheaper nassau or Suffolk for much lower but didn't want to do that. All depends on your comfort level, savings, downpayment amount and family to help you out (if there is an emergency)

Re: What % of income for the house? (and other bills)

Its absolutely shocking what some households are paying for taxes/mortgage/insurance and their actual incomes. All it takes is 1 job loss or health crisis to be a few steps away from foreclosure.
YIKES!

Message edited 6/28/2012 12:04:29 AM.

Re: What % of income for the house? (and other bills)