I’ve never liked the so-called standard guidelines when it comes to the amount of money that is dictated as OK to spend each month on housing. According to the “experts,” it is perfectly fine to spend up to about one-third of your gross monthly income on monthly housing expenses, defined as the total of your principal, interest, taxes, and insurance. I guess the escape hatch for the experts is the use of the words “up to;” that way, they can guiltlessly defend quoting the too-high figure of 30 percent or so (the precise limit will vary depending on whom you ask, but, again, it’s always around one-third of gross monthly income).
According to the popular website Bankrate.com (www.bankrate.com), the upper limit should sit at 28 percent, which is actually a few percentage points lower than that quoted elsewhere. Still…28 percent is still way too high, folks. Think about it in practical terms. Let’s say, between you and your spouse, your gross annual income is about $70,000. Dividing that figure by twelve, we come up with a gross monthly income figure of about $5800; $5800 to cover everything…housing, cars, food…everything. According to the “rules,” you should still be OK if you allocate $1600 of that figure each month to your housing expenses (again, defined as principal, interest, taxes, and insurance).
Sorry…but that’s too much.
I remember when I bought my first house as a much-younger man, I ended up with a payment that represented about 17 percent of my gross monthly income at the time…and you want to know something? I didn’t have a good night’s sleep for the following two weeks, so worried was I about having to meet that obligation each month. I eventually began to relax about it, and I saw that it was manageable, but I will also tell you that there were plenty of months of unexpected expenses that, if I’d had an appreciably higher payment to deal with, there’s no way I would have been able to make it….and 17 percent is a lot lower than 28 percent.
The good news for home buyers these days is that the market is so hopelessly glutted with distressed properties that there is plenty of opportunity to buy one with a payment that is much lower than one-third of gross monthly income. To do that, however, means having to resist the temptation for more, and be happy with less; to look at a house as a four walls and a roof that becomes a home not out of deference to its size, but out of deference to the people who occupy it.
For too many, therein lies the real challenge.
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Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the recently-released book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc; www.investorspassport.com) and the new unarmed combat training DVD Thunderstrikes – How to Develop One Shot, One Kill Striking Power (Paladin Press; www.mikereevesonline.com).