If you have a conversation with a mortgage broker, they will answer the question, “How much can we qualify to borrow?” You can likely qualify for as much as 43% debt to income. That means the total of all your debt payments, plus the mortgage, can be up to 43% of your gross income. If you decide to go that high, you may end up feeling house poor after paying for other expenses like taxes, food and dining out with friends and family.
The general rule of thumb is to try and keep your total housing cost below 30% of your gross income. The lower the better. Of course, the more debt you have (car payments, student loans, credit cards) the more pressure your budget will feel with a mortgage this high, or worse, higher. Don’t set yourself up to be house poor for the next thirty years. Life is stressful enough.
There are some exceptions to this rule. For those with large savings but lower income, you may feel more comfortable with a slightly higher debt-to-income ratio. That is especially true if you have the cash to pay off the mortgage at any time. The other exception is for self-employed folks who often look much poorer on paper than they likely are. With all of the available tax breaks for small business owners, they may have more disposable income to spend on housing than one might expect based on their net income.
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