Question

Maxine earns $1250 dollars a month. whats is the maximum amount she should use for budget for housing?

Answer 1

Answer:

The National Housing Act of 1937 established guidelines for maximum rents for low-income families.  Originally the maximum rent threshold was set at 20%, however this increased to 30% in 1981 (and has remained at this level ever since).  This figure is used to determine how much of your gross monthly income you should spend on rent.

The 28% Rule is used for determining how much of your gross monthly income should be used for a mortgage, however the FHA's threshold is a little higher at 31% of your gross monthly income on a mortgage.

Renting:

30% of $1,250 = 0.3 × 1250 = $375

Mortgage 28% Rule:

28% of $1,250 = 0.28 × 1250 = $350

Mortgage 31% FHA:

31% of $1,250 = 0.31 × 1250 = $387.50

Therefore, discounting the higher FHA's threshold, the maximum amount to budget for housing is:

• $375 (if renting)
• $350 (if buying)