The Arizona Real Estate Notebook asks “Is Scottsdale House Poor?” The question of course is relevant in light of the recent report in the East Valley Tribune stating that
Around the East Valley, it appears that Scottsdale home buyers are the ones most likely to stretch their dollars. There, nearly 22 percent of those with mortgages were paying at least 40 percent.
Mesa followed at 19.7 percent, with 17.9 percent of Tempe homeowners paying that much each month. In Gilbert, the figure was 16.5 percent.
So how much should your mortgage payment be in relation to your income? We lenders call this the front ratio. Its a type of debt to income ratio. Traditionally 30% has been the acceptable number. This means that if your monthly mortgage payment is $1,000 you should make at least $ 3,333.33 a month to maintain a comfortable 30% front ratio.
Crown Financial Ministries, a Christian organization which helps individuals with budgeting and getting out of debt also recommends that same 30%. They take a step further and offer suggestions on what your household budget should look like. Here is their personal budget allocation:
The above allocation is based on your net income. The way Crown calculates net is slightly different. In their version your net income equals, gross income minus giving/tithe, minus taxes.
For anyone needing financial counseling, Crown has a winning formula. My wife and I have been through the program and we can’t tell you how much we’ve benefited. I will warn you though, they do offer some counter intuitive ideas. The one that caught my attention was where they say you should never consistently save until you are consistently giving. That is definitely a hard one for me to grasp, but the system has a proven track record. I can’t argue with that.
We have giving more and more lately and I can’t tell you how much we’ve received in return. Plus the cool thing is we’re not getting anything back in money terms. Shows you that money doesn’t buy happiness. That’s for another day.
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on Sep 13th, 2007 at 7:47 pm
Shailesh, nice stuff today. FYI, I entered you into StumbleUpon today. Hope you don’t mind :0
on Sep 13th, 2007 at 9:34 pm
There is a big chunk of the pie missing- charitable contributions… where does that fit in?
It may be because I’m in Texas, but almost everyone I know gives at least 10% of all income away.
Regardless, I think this is a great article- I think that ANY company that can give you advice that isn’t inside the box is worth looking at!
on Sep 14th, 2007 at 5:54 am
Thanks Steve. That’s cool.
Lani,
Good point.
The above budget is based on your net income. Your net income equals gross income minus giving/tithe, minus taxes. So, just to clarify for everyone if your household income is $100,000 per year then take away $10,000 (giving/tithe) and then take away about $22,000 or so (depending on your tax situation) and your net income for the year is $68,000.
on Sep 25th, 2007 at 8:28 am
Shailesh,
Something I remember from Crown that I always had a hard time with is the 30% they recommend for housing is all-inclusive of housing costs: mortgage or rent payment, utilities, and maintenance costs (e.g. HOA fees). Once you add all of those up, it is almost impossible to keep it to 30%. Costs for all of these things are going up and salaries are not going up proportionately.
Suggestions on this?
Jodi
on Sep 25th, 2007 at 10:33 am
Jodi,
I’m not sure I can necessarily give suggestions. However, I agree it’s tough to keep things under 30% these days. I know the good loan programs recommend 38%. This doesn’t include utilities and such, only loan payment, taxes and insurance.
Thanks,
Shailesh