When Foreclosure Threatens: Can You Afford to Keep Your Home? Part 4b — NMBankruptcyBlog.com

headacheForeclosure rates are as alarming as unemployment rates. Deciding what to do if your home is threatened in this way is a severe test of maturity. We don’t want to lose what is usually both our biggest financial investment and, truly, our safety and refuge.

One of my favorite legal self-help publishers has an article I’m running in a series on, Monday  2/15, 2/22, 3/1, 3/8, 3/15, 3/22,/ 3/29, 4/5, 4/12, 4/19, 4/26, and 5/3.

Use the Standard Ratios

As a general rule, the housing industry considers a loan affordable if your overall monthly mortgage payments do not exceed somewhere between 29% and 33% of your gross monthly income. This is frequently called your income to mortgage debt ratio. For example, if your annual gross income is $75,000, then your mortgage payments should not exceed $2,062 if you use the 33% figure. They should not exceed $1,562 if you use a more modest 25% income-to-mortgage debt ratio.

You should tailor these numbers to your particular situation. If you have a child with special needs or two kids in college, for example, your mortgage payment might not be affordable even if it’s below the recommended 29-33% income to mortgage debt ratio. On the flip side, if you have few other expenses (perhaps you live simply, don’t own a car, or grow some of your own food), you might be able to afford a mortgage payment that exceeds the 29-33% figure.

Reprinted with permission from the publisher, Nolo, Copyright 2009.

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