OK I know this has been asked many times, but the main thing I want to know is why do they say X% of your GROSS pay should go to housing instead of X% of your NET pay? I live in an expensive area, and spending around 26% of my monthly GROSS pay on mortgage+insurance+taxes (no PMI) is the only way I can buy any kind of house. If I used the 30-40% of NET pay formula I wouldn't be able to afford a shack. So what is the story? I don't want to be house poor, but the amount leftover after tax/medical/dental/401k deductions is much different than the gross income!
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The reason they say gross pay instead of net pay. In theory that percentage already takes into consideration that taxes are coming out. They also assume that you can cancel insurance/401k contributions if you have to in order to make your bills, those are all voluntary. Non-voluntary deductions (garnishment, child support payments) are taken out of your income before they figure the ratio. As you've probably been told this is the number the lender will use to qualify you for the amount. Please only use this as a guideline. The main question is if you, personally, can budget the payment. If you don't want to cancel your voluntary deductions or change your lifestyle, the number you can really afford will probably be different. The real way to figure how much you can afford is to get your mortgage payment on a 30 year fixed loan, add in your taxes and insurance, and have all that add up to what you're able and willing to invest in a home. You can find a decent calculator here: http://www.easyonlinerefi.com/Calculator… That will figure out payments on the mortgage for you.
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