Money Question! Please help! Thanks!?

Question

Hello, I make 2000 a month. I have a car payment thats 360 a month and a cell phone bill. These are my only two bills and I have no children. Do you think I can afford $650 rent $200 extra for utilities? So thats a total of 1300 a month including my cell. Am I pushing it? Should I find a cheaper place?

Answer 1

If you are making $2000 gross (before taxes), then you definitely need to find a cheaper place.  Even if you are making $2000 net (after taxes), you are still cutting it close.

The first affordability rule is that your monthly housing costs shouldn't be more than 32% of your gross household monthly income. Whether you have $2k gross or net, you are still above this guideline.  Divide your total monthly gross by $850.

The second affordability rule is that your entire monthly debt load shouldn't be more than 40% of your gross monthly income. This includes housing costs and other debts, such as car loans and credit card payments. Lenders add up these debts to determine what percentage they are of your gross household monthly income. This figure is your Total Debt Service (TDS) ratio.  Divide your monthly gross income by $1210 (plus the payment on any outstanding credit card payments.

In either calculation, and whether you are making $2k gross or net, it appears you shold find a cheaper place.  I'm not saying it can't be done, but it would be a struggle.

Answer 2

Is the $2000 per month before or after taxes.  

Industry standards for safe mortgage lending states that your monthly mortgage payment (or rent) should not exceed 28% of your gross monthly income.

At $2000 gross per month, you are paying 32.5% which is slightly high since you still have to cover $200 in utilities.

At $2000 NET per month, your gross should be around $2800 per month.  At $2800 gross per month, you are paying 23% which is under safe lending guidelines.