How much to spend on a mortgage is a personal decision that depends in part on how much value you place on your choice of housing as part of your budget. Yet there are some general guidelines you can consider.
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How Lenders Figure Your Maximum Mortgage
One guideline that most lenders use is that your mortgage payment shouldn't be more than 28 per cent of your income. A related guideline is that your total monthly payments on all of your debts (e.g., mortgage, credit card, car loan) shouldn't be more than 36 per cent of your income. "Income" in this context refers to your gross income before taxes are taken out of your paycheck.
Consider Other Housing Costs
While those guidelines are helpful, it's also important to consider not just your mortgage payment, but also the other costs of owning your home. Those include property taxes, homeowner insurance and maintenance and repairs to your home, which can be costly. Adding up those other costs, you might not want to spend as much as 28 per cent of your income.
High-Cost Housing Areas
If you live in a very high-cost housing area, such as San Francisco, Los Angeles, New York City or Boston, you might decide to spend more than 28 per cent of your income on your mortgage payment. Also, some parents choose to spend more of their income on housing so they can live in a certain state school district and avoid the cost of private schools.
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