Re: Proportion of income on rent/mortgage - and which would you choose
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It isn't the %, it's the lifestyle and money left over each month.
I agree with this. If you earn $50000 a month then it would be pretty easy to live on half of it! I prefer to calculate how much we need per month for all the costs BESIDES rent/mortgage then figure out how much we can afford to spend on rent mortgage based on that. If what you need to live on is only 40% of your income then why not spend 60% on rent/mortgage? Whatever you can afford and works for you.
Re: Proportion of income on rent/mortgage - and which would you choose
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I agree with this. If you earn $50000 a month then it would be pretty easy to live on half of it!
Unless you lose your job and then you're totally up the creek....
Re: Proportion of income on rent/mortgage - and which would you choose
I think is very dependent on individual situations - for example if you are reliant is only one income and you are talking 40% of it or 30% etc if that income stream disappears then you are in trouble whether is 30% or 40%. If you have for example a mortgage that is 50% of your income but you only actually spend 20% and save the rest (additional payments on your mortgage for example) then you are in a better situation if your income declines than someone who has a mortgage of 30% of their income but spends every penny of the rest of the 70%.
It also depends on how variable your income is likely to be - our mortgage started as about 40% of my income alone (DH income was not alot) but when I was on maternity leave or had no job at times it went up to 80% of income (as I didn't have one) - but that was short term thing.
I personally wouldn't live somewhere I didn't want to just to buy a house, if I was considering somewhere a bit different to current I would rent in that area first just to confirm could live with it - in your example you would probably save money renting in that area first too. Also is worth considering you can buy a house and not live in it, as a form of investment too, buy somewhere as the investment and then rent where you actually want to live.
I think renting long term before buying can be a valid strategy, if you actually save the money you would have spent on buying, and put it towards a deposit. Depending on where you rent vs where you buy I think you can actually save more money in the short-term doing this than buying somewhere and intending to trade up in 8 years for example. The past 10 years growth in house prices I don't believe will continue for the next 10 years - the growth will be slower in many areas.
Re: Proportion of income on rent/mortgage - and which would you choose
Honestly I would be surprised if a bank approved you for a home loan when such a large proportion of your wages is needed to service the loan (and if you approved would love to know what bank it is so we can get on that one).
Personally I would choose neither situation, I would prefer to live somewhere where I was happy, less money was needed to survive and more money to live and love life. But that's me
Re: Proportion of income on rent/mortgage - and which would you choose
% income is less important to a bank than the LTV rate. You have enough deposit, they make more than their money back should you default, they'll agree to lend you the money.
Re: Proportion of income on rent/mortgage - and which would you choose
Based on my ft wage, we pay 25% of our after tax income on rent. While I'm on mat leave it works out to be 35% of after tax income. We honestly couldn't afford to pay much more in rent. If we were to buy, we would not be able to afford the same quality of house that we live in while renting so we choose to rent.
