Question about figuring out how an affordable monthly mortgage...

[ScrimpAndSave]

Okay and just a few more questions...when I figure out how much I can afford in a mortgage, do I multiply my monthly gross or net income by .36?

At $70,000 my gross monthly is about: $5,833

At $70,000 my net monthly is about: $4,083

(I assumed 30% for taxes and other stuff taken out of my pay to get my net income)

So, do I multiply .36 by $5,833 or $4,083.

Also, should this total that I get after I multiply by .36 include the mortgage, principal, interest and insurance as well?

For a $220,000 loan...5.5% interest rate....30 year fixed...it looks like the mortgage, interest and insurance would be around $1,600 a month. I wonder if that will be doable.

Then if we are able to save for the $80,000 downpayment, we will be able to get the $300,000 house.

Oh I hope so!

[humandraydel]

The mortgage industry typically uses gross when determining if you can "afford" a mortgage. This should include all of PITI (principal, interest, taxes, and insurance). But you should also include other debt payments in the 35% calculation (car, credit card, etc).

That being said, only you can decide what you can afford. Just because the mortgage industry says you can afford it doesn't mean that you can. Personally, I would create a detailed budget that includes savings, fun money, etc. Based on that, you can determine what YOU think you can afford. Then, pretend you have that mortgage payment for 3 months by saving it. If you feel comfortable with the mortgage payment after 3 months, you can afford it.

[ScrimpAndSave]

Awesome advice...thank you so much!

[LivingAlmostLarge]

I have to say there is a lot of play there too. 36% of $200k is very different from 36% of $50k. You have a lot more give in a $200k salary. So it's easier to afford a more expensive mortgage if you wanted, not that you should.

[jIM_Ohio]

Gross pay is needed for the calculations because that is same gross pay where tax implications start. 36% of gross pay "on paper" can be significantly reduced to less than 36% of gross after tax writeoffs from mortgage interest and property taxes.