How much money one spends on a condominium unit should be a function of both how the unit will be used and how much the buyer can afford. As the recent real estate crisis taught, buyers must be careful not to overextend themselves on real estate purchases. The mortgage industry now has certain restrictions in place to limit the banks' risks and to help buyers avoid getting in over their heads. Tighter restrictions for mortgage qualification, along with increased down payments, may limit the price range in which buyers are looking.
A general rule of thumb for owner-occupied units is to spend 30% or less of gross (pre-tax) income on housing costs. Take into consideration all monthly income – before taxes and other deductions – and multiply that figure by 30%. This is the maximum total amount that should be spent on housing costs, including mortgage, property taxes, insurance and condominium fees. Spending even less than 30% will give you a bit more flexibility in the event of a lifestyle change or increased cost in another area of your life.
Another rule of thumb is to spend no more than 36%of income on total monthly debt payments. In other words, the more non-mortgage debt that one has (student loans, credit cards, auto loans, child support, etc) the less one can afford to spend on a mortgage. To calculate, first determine the total monthly income amount. Then, multiply this figure by 36%. Deduct the total debt payments, and the remainder will be the amount that can be spent on housing.
Those who plan on using the property as an income-producing investment will have to approach purchase decisions from a business perspective. Since certain expenses associated with income-producing properties may be tax deductible, buyers may wish to consult with a qualified real estate attorney and/or a tax specialist prior to making any real estate decisions.
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