I know that you’re supposed to stay around 30% of your income for housing costs per month. Is that 30% of net or gross, and is that only for the housing, or do they recommend staying under 30% for housing and all utilities?

This is an interesting question without a straightforward answer. “They” say many things, but from what I can tell from talking with some other financial types and consulting my common sense, the basic rule is 30% of your pre-tax (or gross) earnings, and that doesn’t include utitilies.

That said, here is what I, personally, think:

Try to keep your housing payment to 28% of your net monthly income.

Many mortgage lenders, if you want the best mortgage interest rate, have what is known as the 28/36 qualifying ratio. This means that your mortgage payment should only be 28% of your monthly income and no more than 36% of your monthly income should go to total debt (mortgage + other obligations). I suspect that this is even more common in the current economic climate.

I think that you would be wise to keep your housing payment — mortgage or rent — to 28% of your net income, rather than relying on your pre-tax income. (Our mortgage payment is 25% of our net income.) It might get you qualified, but you want to be able to afford the home without being “house poor” . I would even go so far as to include PMI and property taxes in the category of “mortgage payment”. We’ve done this, and our total housing expenses (including utilities and maintenance) is less than 30% of our monthly income.

What do you think is a reasonable percentage of your monthly income to make for housing?

image source: sxc.hu

Post from: EveryJoe

30% Housing Costs: Net or Gross?

But maybe, just maybe the reason that folks are paying of their credit cards first is so that they can put their mortgage payments on their credit cards.

That’s right. According to BusinessWeek (hat tip: Miki at Leadership Turn), more people are opting to use their credit cards to make mortgage payments.

Using your credit card to pay your mortgage

BusinessWeek reports that Philip Mikal, a guy at ChargeSmart, hails this trend as something for savvy homeowners:

“With the reward points, cash back, and payment flexibility [on] cards, educated consumers are looking to charge everything they can,” says ChargeSmart’s Philip Mikal.

Um, yeah. That only works if you actually pay your credit card balance off each month.

Besides, there is one good reason to avoid paying your mortgage with your credit card (tempting though it may be). Can you guess what it is?

The fees.

When you use ChargeSmart to set up an online mortgage payment to one of 48 lenders with your credit card (many mortgage lenders won’t accept credit card payments), you are hit with fees. First of all, there is the $4.95 flat fee for each payment. Then there is a transaction fee that is 2.29% of your mortgage payment amount. For me, that means ($1,350 x 0.029 = $30.92 + $4.95 = $35.87. I could pay an extra $430.44 a year, to put my mortgage payment on my credit card. Somehow I think that would negate the 1% cash back I’d be getting.

Another issue is the credit card interest rate. If you carry a balance, it means you are likely paying upward of 13% interest on your mortgage loan now, as opposed to the average 6.4% rate for a 30-year fixed. This could actually make things worse for you than better.

What do you think? Would you consider paying your mortgage with your credit card?

image credit: sxc.hu

Post from: EveryJoe

Paying Your Mortgage With Your Credit Card: Worst Idea Ever?