Paying the Right Amount for a House

Kayla asks if taxes and insurance should be factored into the 25% of income that is acceptable for housing.

QUESTION: Kayla on Twitter asks if taxes and insurance should be factored into the 25% of income that is acceptable for housing.

ANSWER: Yes they should. The idea is that you don’t want all your money going out and you don’t want to be house poor. Mortgage companies will qualify you for twice as much house as you can afford. They will put you on an adjustable rate mortgage for 30 years to where you are in debt up to your eyeballs and you cannot breathe. A payment like that can be up to 36% of your take-home pay. That’s just nuts.

Then you can’t figure out why you can’t go on vacation or why you got yourself into debt to buy groceries or why you can’t afford your kids’ college fund. It’s because you have a mortgage coming out of your ears. It’s called being house poor. The question is, do you want to be house poor? It’s not about what Dave Ramsey’s rules are.

I can come up with guidelines, but I’m trying to get you to think. I want you to engage in critical thought; that’s my first goal. Let’s start with telling yourself that you don’t want too much house payment as your guideline. That’s what you’re after.

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