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In this guide: How to determine what percentage of your income you should put toward your mortgage when home buying in Washington.
You might have heard that a mortgage loan should only use a certain percentage of your income. This is common advice offered by everyone from financial advisors to housing counselors.
But what is this magic number, and does it apply to all situations? How do you know if you’re taking on too much mortgage debt relative to your income?
In short: Many advisors recommend using the 28/36 rule of thumb as a general guide. This has to do with your housing costs vs income in Washington, and simply means that your mortgage and housing costs should not exceed 28% of your gross monthly income, while your total debts should not use more than 36%.
But you could borrow more than that, if you’re comfortable doing so.
Before we answer the question, “What percentage of income should my mortgage be in Washington?” let’s start by looking at why this question matters. Why is it so important to determine what percentage of your income should go toward your mortgage payments?
It’s a protective measure, more than anything else. Doing this kind of math ahead of time can help you avoid financial strain later on down the road.
For a typical home buyer in Washington, buying a house represents the largest financial transaction of a lifetime. So it’s important to get it right.
Limiting your mortgage debt to a certain percentage of your annual income can help you achieve the first scenario listed above. It will help you avoid overextending yourself while also reducing the risk of default and foreclosure.
Mortgage-related decisions can affect long-term financial health. So it’s crucial to balance your homeownership costs with retirement savings, investments, and lifestyle expenses.
Responsible budgeting allows for a more comfortable, sustainable financial future.
There is no one-size-fits-all rule when it comes to mortgage affordability in Washington. Some people are comfortable with taking on more debt, while others tend to fare better with less. It varies among individuals.
Even so, it helps to have some general guidelines as a starting point. And that’s what the “28/36” rule for mortgages offers. It gives you somewhere to start.
On the surface, this rule of thumb is fairly straightforward. It states that a person’s housing costs should not exceed 28% of their gross monthly income, while the total debt (including the mortgage) should not exceed 36%.
This rule of thumb could be applied to an individual borrower or a couple. In the case of two co-borrowers, the 28% and 36% limits would apply to their combined income.
According to the U.S. Census Bureau, the median household income in the state of Washington is currently around $90,000. At that income level, the 28/36 rule would work out like this:
Just remember that this rule might not apply to all borrowers and mortgage scenarios. Financial advisors often recommend these benchmarks as a starting point.
In short: The 28/36 “rule” can be helpful in some cases. But it’s more of a guideline than a hard-and-fast rule.
Many of the mortgage products available today allow for debt levels that exceed the 28/36 guideline, up to 43% or even higher in some cases. So don’t think that you’re limited to the loan sizes or percentages described above.
By sticking to the 28/36 rule, first-time home buyers can avoid becoming “house poor” and avoid struggling with other expenses after paying their mortgage. This rule encourages financial stability and ensures buyers aren’t overextending themselves with their home purchase.
To use this guideline, follow these steps:
Calculate Your Gross Monthly Income: Start by determining your gross monthly income, which is your total earnings before taxes and deductions.
For example, if you earn $6,000 per month before taxes, this is your gross monthly income.
Determine Your Housing Budget (28%): Multiply your gross monthly income by 28% to find the maximum amount you should spend on housing expenses.
For example, $6,000 x 0.28 = $1,680. According to the 28/36 rule, your monthly housing costs (mortgage, insurance, property taxes) should not exceed $1,680.
Assess Your Total Debt (36%): Multiply your gross monthly income by 36% to determine the maximum you should spend on all monthly debt obligations.
For example, $6,000 x 0.36 = $2,160. This means your total monthly debts, including your housing costs and other debts (like car payments, student loans, and credit cards), should not exceed $2,160.
Factor in All Debt Payments: Subtract any non-housing debt (e.g., car payments, credit card minimums) from the total debt allowance (36%) to determine how much is left for housing.
For example, f your non-housing debt (car loan + credit card payments) totals $500, then the maximum you can afford for housing is $2,160 – $500 = $1,660.
Use Pre-Approval to Plan: First-time buyers should get pre-approved for a mortgage, which will help them understand their purchasing power and align it with the 28/36 rule. Mortgage lenders in Washington often look at your debt-to-income ratio, and staying within these limits helps ensure loan approval.
Plan for Unexpected Costs: The 28/36 rule helps you stay within a sustainable budget, but first-time buyers should also plan for potential costs such as home maintenance, emergencies, or property tax increases, which could affect long-term affordability.
When taking out a mortgage loan in the state of Washington, your lender will review your financial situation to determine how much you can borrow.
To accomplish this, they’ll use an income-related percentage similar to what we just discussed. It’s called the debt-to-income ratio for mortgages.
Definition: The debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income.
You have a front-end and a back-end DTI. Here’s the difference:
Mortgage lenders use the debt-to-income ratio to determine how much to lend. It helps them assess how much debt a person can handle without financial strain, based on their current load.
For conventional loans, lenders typically look for a maximum back-end DTI of 36% to 43%. But some mortgage products allow for higher ratios, especially if the borrower has excellent credit and/or cash reserves in the bank.
In both cases, the goal is the same: to prevent financial hardship down the road.
So, the answer to this question, “What percentage of income should my mortgage be in Washington?”, is this: it’s recommend to spend no more than 28% of your gross monthly income on mortgage and housing costs and no more than 36% of income on your total debts.
Are you looking to buy a home in Washington State and need help with financing? We can review your current financial situation including your income to determine how much you’re able to borrow. Visit our website today to get an instant rate quote or contact our team to get started!
Whether you’re buying a home or ready to refinance, our professionals can help.
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