Thursday, March 22, 2012


Does anyone know where the name of today's post came from? It's from the geniuses that developed this little diddy:
Can you believe it's been twelve years since that series aired? Me either. Anyway, "5gether" was the first song off their sophomore album 2gether: Again. It popped into my head while reading the article "5 Tips to Cut Custs on Your Home" What? You're not reminded of fictional boy bands while reading finance articles? Weirdo.

Absolutely none of the recommendations are helpful to us at the moment. None of the homes in our area are even selling for me to fight a property assessment (though this tip did help my mom last year!), we can't even afford basic remodeling right now because of the costs of removing the zoo from our attic, I'm fairly certain we have the cheapest mortgage we could have scored (and a low interest rate to boot), and we don't have a business that needs a home office, at least not until this blog goes viral.

The only tip that got me thinking was #3 - Know how much mortgage you can afford. I distinctly remember being on the phone with Wells Fargo during the pre-approval interview and almost having a heart attack when we were approved for a $1,600 per-month mortgage. Once I picked my jaw up from the desk, I remembered I was only paying half that amount. $800 per month still seemed like a lot, especially with our wedding right around the corner. I never did a monthly mortage calculator back then, so why not do one now?

Most mortgage calculators tell you to take your gross monthly income and multiply it by 28%. This percentage accounts for monthly payments for principal and interest, mortgage insurance (we have it), property taxes, homeowners insurance, homeowners association fees (don't have it), and payments for a home-equity loan or line of credit (don't have either). I used my take-home pay to do the calculations - I don't see the point in figuring out what I could afford before everything is taken out, since that's not what goes into my bank account every other Friday.

$2,200 x 0.28 = $616.00 per month

I'm just squeeking under the max by $16.00. Phew!

The other calculator the article suggested was a Maximum Monthly Debt Repayment (MMDR) calculation of your gross monthly income multiplied by 36%. The MMDR includes mortgage payments, credit cards, student loans, car loans/leases, ailmony, child support, or other debt with more than ten months of repayment left. It's noteworthy that the ideal percentage is 36%, but in places where the cost of living is higher, like the northern NJ/NYC region, the percentage may go as high as 45% Here's mine:

$2,200 x 0.36 = $792.00 per month

Here is where I blow past the recommended 36% and even topple the cap of 45%. Between the morgage ($600), my student loans ($205), and my credit card payments ($350), I'm closer to using 52% of my monthly take home pay just for debt. Wow! No wonder it's tight during the winter months when the electric bill gets sky high as well.

What's your percentage look like? Off the chart or small and sweet?

Day Thirty One Spent: $0.00
Day Thirty One Saved: $0.00

1 comment:

  1. Wow... Ok, so at first I was really disappointed in myself, because when I did the calculations, I was bumping right up against the maximums at 28% for mortgage (PITI), and 36% for total debt. Then I realized I was using our net income! Our actual percentages are 21% on the mortgage and 27% for all debt. Now I don't feel so bad about the fact that I will probably have to take out a car loan later this year. :-P

    Also, it is really scary how much the banks will pre-approve you for. I actually didn't even want to know. When I called I told them how much of a loan we were willing to take out and asked for a pre-approval on that amount and nothing more.