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Originally Posted by safari
Debt is one of the factors that lenders look at. Like the previous poster said, they also consider your assets (net worth) and salary. I read somewhere that in order to qualify for a loan, the projected monthly payment must be less than 38% of your gross monthly income. Also, all your monthly debt payments together with the mortgage payment should not exceed 45% of your gross income.
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Based on the figures you've quoted, we could definitely qualify for a loan. The rent we're paying on our apartment is $770/month. That's only 24% of our gross annual income. So we're good in that respect.
As for our monthly debt payments, they are roughly $1000/month. This includes payments for two credit cards, one consumer loan and one auto loan. That's about 30% of our gross annual income. So apparently we're doing well in that respect, too.
So if our monthly mortgage payments were equal to what we're paying now in rent, we could get a mortgage loan for about $120k. And $120k could buy us an actual HOUSE with a yard. We don't need anything huge or fancy -- after living in a one-bedroom apartment for nearly 6 years, anything else will seem like a mansion.
I realize this should make me feel a lot better about our situation. But despite how the lending industry works, the reality is that we don't live on our gross annual income, we live on our net annual income. And the reality is that there is far more to pay for than just our consumer debt. We have to eat, too, and clothe ourselves and have electricity and stuff like that.
So when I hear "monthly debt payments" I actually don't just think of our credit card/loan payments -- I think of ALL our monthly expenses. Because of that, I don't feel like we're ever going to be able to afford to buy a house, because we're just scraping by as it is.
Even if the mortgage payments are the same as what we're paying now in rent.
And don't even mention the 20% downpayment -- that's just ridiculous. There's NO WAY we could afford to put 20% down. We're doing all we can just to preserve (and slowly add to) the $2000 emergency savings we've got. I mean, if we had enough savings to pay down 20% on a house -- even an inexpensive house -- we'd be out of debt already!
So how do people do it? How do they save up for a 20% down payment AND afford the mortgage payment AND afford to pay down debt AND all the other bills in life? On the surface it looks like we could get a loan and buy a home, but reality tells me differently.
Is it just that people are being foolish when they decide to buy a home despite having a lot of debt? Everyone says that home ownership has huge financial advantages and paying rent month after month is just throwing money down the drain. I tend to agree, but don't see how we can change our situation.
~ Jenney