Final answer:
Your monthly mortgage payment should not exceed 28% of your gross monthly income. Keeping within this percentage helps ensure financial flexibility and prevents becoming house-poor.
Step-by-step explanation:
As a general guideline, your monthly mortgage payment should not exceed 28% of your gross monthly income. This figure is commonly cited by lenders and financial planners as a safe rule to ensure that homeowners do not become "house-poor," which means having little money left over for other expenses after paying the mortgage.
For example, if you have a gross monthly income of $5,000, your monthly mortgage payment should ideally be no more than $1,400, which is 28% of your income. This percentage can help to maintain a balanced budget and allows for financial flexibility.
It is also worth noting the importance of a down payment. A 20% down payment is considered a standard to avoid paying for mortgage insurance, which can add to the monthly cost of your home. However, some buyers may opt for lower down payment options, such as 0-3.5%, especially if they are first-time homebuyers or do not have enough savings for a larger down payment. This lower initial cost does come with the added expense of mortgage insurance.