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Monday, February 16, 2009

Mortgages: gross or net income?

The Feb 15th Chicago Tribune comments on mortgages. I'm just curious about "income" in what's below. Do they mean gross income or net income after taxes, insurance, etc.? Usually "income" refers to gross, but maybe the mortgage context uses something else.

"Not long ago 55% was the mainline figure -- that is, if your income
was $1,000 per month, mortgage lenders might have allowed you to
commit $550 to your mortgage and other debts, such as car loans and
credit card balances... That's been ratcheted back ... Now we don't
see much in excess of 43%."

The old rule in the 1970's and 1980's used to be a maximum of 30% of gross income for all mortgage and real estate tax payments plus other debts; others remember 28%, which isn't much different. That's of course when health insurance costs were much, much lower and often fully paid by your employer. Even 43% is so much more that the old maximum that it makes we wonder whether this isn't gross income in the calculation any more.