New mortgage regulations such as the Ability to Pay and Qualified Mortgage rules place limits on how much of a person’s income can be leveraged for a mortgage loan repayment…generally those limits are 31% of their gross monthly income and 43% for total debt servicing…or all of their other payments combined.
Let’s also assume that Jane has managed to save 5% for her down payment and her very generous parents are matching her down payment with another 5% so she only needs to borrow $198,000.
With today’s rates in the mid 4’s, she could expect her principal & interest payment to be about $1,003. But unlike renting, in addition to her monthly payment she will also have to pay taxes, insurance and probably PMI. For this we’ll example we can estimate those to be an additional $350 per month bringing her total estimated payment to approximately $1,353 which is great because it’s about what she pays now in rent!
So let’s see how Jane measures up: