30-Year Mortgages Make a Bigger Down Payment How to Lower Your Mortgage Payment Extend Your Mortgage TermĬhoosing a longer mortgage term spreads your loan balance over more total payments, reducing the amount of each payment individually.īut remember, extending your term comes at a cost, as you’ll ultimately pay more in cumulative interest over the life of your loan. They’ll simply have to make trade-offs to buy in those areas. Does it mean they shouldn’t buy a home? Not necessarily. Yes, people tend to earn more in these high-cost-of-living areas, but not that much more. I recommend striving to keep total debt to a third of your pretax income, or 33%.Īs some commenters have pointed out, while it may be possible to buy a decent home in a small midwestern town for $100,000 (and well within these ratios), buyers in New York or San Francisco will need to spend five times that amount just to get a hole in the wall. Keep your total debt payments at or below 40% of your pretax monthly income.Aim to keep your mortgage payment at or below 28% of your pretax monthly income.If I had to set a rule, it would be this: That approach will be unrealistic in a number of regional American housing markets with high home prices. Good luck finding a mortgage in California that you can pay off over a 15-year term, with monthly payments at less than 25% of your after-tax income. And his one-size-fits-all advice might shut out a huge segment of Americans from ever realizing their homeownership dreams. Not everybody is as debt-averse as Ramsey. One week’s paycheck is about 23% of your monthly (after-tax) income.
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