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How much money should I borrow for a house?
Home » Real Estate » Obtaining Financing for a House » How much money should I borrow for a house?When you apply for a loan, lenders won't loan you more money than their research says you can repay. Usually, lenders have a rule that no more than 28% of your gross monthly income can be spent on your mortgage payment and no more than 36% of your gross monthly income can go to pay off all of your monthly debts including the mortgage.
Based on this rule, if you and your spouse earn a gross monthly income of $5,000, multiply that by 28% (0.28) to get $1,400 - the maximum monthly mortgage payment you can make. Then multiply $5,000 by 36% (0.36) to get $1,800 - and that is the total monthly debt service you are allowed.
Some experts, however, warn against borrowing what the lenders offer you.
In the book 10 Steps to Home Ownership, Ilyce R. Glink says, "Today's permissiveness in lending can lead to over-borrowing, a situation similar to overbuying. Home buyers who are normally cautious and conservative individuals find themselves running out and borrowing to their limit.
"Just because a lender will allow you to dig yourself deep into debt doesn't mean you have to pick up the shovel."
Experts suggest that you consider spending only 25 percent of your gross monthly income on your mortgage and no more than 30 percent on your total debt. The lower ratio might be the difference that allows you a few luxuries - like decorating your new home or ordering in dinner when your kitchen stuff is still in packing boxes.
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