I spent a number of years in the banking industry and led the lending functions for a large regional bank footprint. It was a great experience that taught me a lot about family finance and how much is safe for borrowing when considering a mortgage and also considering your overall household debt.
In general, banks and mortgage lending companies start by looking at your finances and determining how much, that is-what percentage, of your gross (before taxes) monthly income you can afford for your monthly mortgage payment.
Lenders consider your monthly mortgage payment to be your principle and interest payment, plus 1/12 of your annual property taxes plus 1/12 of your annual property insurance. This is sometimes referred to with the acronym PITI.
When making a determination as to the maximum payment that can be approved, assuming your credit rating is good, most lenders do not want to see more than 28% of your gross monthly income consumed by your mortgage (PITI) payment.
Additionally, they will look at the proposed mortgage payment for the house of your dreams and add to that all other monthly debt payments such as credit cards, auto payments, and personal loans. The sum total of your mortgage and all other monthly installment debt should not exceed 36% of your gross monthly household income.
Most lenders feel that the 28% rule and the overall 36% debt rule still allow for adequate budgeting for family expenses such as food, clothing, transportation costs, school expenses and so forth. There is only one problem with these rules…..
They do not consider the commitment that Christ followers have toward tithing, general giving, and also the ability to respond to needs when the Holy Spirit prompts you to give above and beyond. Let’s face it, lenders want to lend you money and enjoy the benefit of you paying them interest. So, their formulas will stretch to the edge. My experience has found that a family burdened to the full 28% level and perhaps to the 36% level are in pretty deep.
Their budget, if leveraged to those levels of 28% and 36% will simply not leave much margin to give generously. We all know the scripture in II Corinthians in Chapter 9 that tells us that “God loves a cheerful giver.” My understanding is that the purest translation is that “God loves a hilarious giver.” I’ve tried to always adopt that posture. It is a joy to give with a big smile or perhaps even laughter at how good it feels.
So, if you are in the market for a mortgage, take care to consider the lenders rules. But in addition to that, do your own homework and math. What can you really afford and still give spontaneously, joyfully, and even hilariously?!
Jeff Jenness
Chief Strategy Officer
Servant Solutions