What is an Appropriate Monthly Housing Payment

When you are purchasing a home, you are adding the most significant monthly expense to your budget. This article will detail what is a normal payment within the industry and why and what comprises the payment.

The industry standard over the past few decades is the housing payment should not exceed 28% of the total, gross monthly household income. As an example, if the household income was $120,000 annually this would equate to $10,000 per month. 28% of $10,000 is $2800 which would be the general guideline for a normal monthly mortgage payment.

What are the components of the payment. They are typically the principal and interest for repayment of the loan, the property taxes and homeowner’s insurance. If there was less than 20% down, mortgage insurance would also be included.

Let’s look at an example. When purchasing a $300,000 home and putting 20% down, the mortgage amount would be $240,000. Borrowing this on a 30 year fixed mortgage at a rate of 6.0% would result in a principal and interest payment of $1439. Taxes annually would be about $3600 and homeowners insurance annually would be $1400. Monthly this would be $416 and coupled with the mortgage payment would result in a total monthly obligation of $1856.

Remember, you want to feel comfortable with you mortgage payment and not be house poor. Also, 28% is just a general guidepost and with very good to excellent credit mortgages can be approved up to 35% of monthly income.

As always, please consult with a trusted mortgage advisor to learn more about your options and what you qualify for.