How Homebuyers Can Navigate Rising Mortgage Rates

Some financial planners may use a similar rough starting point: spend no more than 28% of your gross income on all of your housing expenses — mortgage payments, property taxes, insurance — and an additional 1-2% allocated for repairs and maintenance.

This won’t work for everyone, however, especially in high-cost metropolitan areas where it’s often difficult to find rentals within these limits.

“Take into account all your monthly expenses and really decide how much you want to spend on housing,” said Tom Blower, senior financial adviser at Fiduciary Financial Advisors. “I would never encourage a client to strictly follow a percentage of income to determine how much to spend each month. Rules of thumb are guidelines and something to consider, but simply not the end of it all. »

Rising interest rates mean many people have had to limit their price ranges – by far. A family earning $125,000 who wanted to set aside 20% and spend no more than 28% of their gross income on housing — about $35,000 — could comfortably afford a $465,000 house when the rate of interest was 3%. At 5%, that figure drops to $405,000, according to Eric Roberge, financial planner and founder of Beyond Your Hammock in Boston. Its calculation takes into account property taxes, maintenance and insurance.

He generally suggests allocating a conservative share of household income – no more than around 23% – to housing, but acknowledged that this is difficult in many places. “Our affordability calculus doesn’t change,” Roberge said. “However, the big jump in tariffs changes what is actually affordable. »

There are other considerations. With many Americans moving from cities to larger spaces in the suburbs, you’ll also need to consider the added cost of running and furnishing that home, for example, or the extra amount you’ll need to spend on transportation.

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