Evening star., 1941-02-22
L.usk
Continued From Page BID

own one. Some include items that
to a certain extent are bookkeeping
operations which no home buyer
ever pays any attention to. If he
did he probably would be scared out
of ever buying home. For eX-
ample, who figures interest on the
original cash payment and the
depreciation of the house? These
are two expense items which actually
exist, but half the fun of buying and
owning your home would be lost If
every single expense was considered
| in a cold business fashion. So such
items have been left out of the
example below. 1t is based on the
actual monthly cash outgo for about
IS years from the date of purchase,
when the home will be completely
paid for.
1t is generally conceded that one
should not pay more than 20 to 25
per cent of income for rent. This
means the actual cost of shelter. 1t
does not include the cost of heating,
lighting and fuel for cooking. When
buying a home part of the monthly
payment goes toward the reduction
of the mortgage. This is money
saved. 1t is not an expense. 1t
follows then that somewhat more
than 25 per cent of income may be
used for monthly payments to pur-
chase home.
Sample Table of Costs.
Here is sample estimated setup
showing how man earning $275 a
month can buy a $4,000 home, as
suming that he has $4,000 for down
payment and that there are no
special assessments against the
property.
Annual Monthly Outlay Required to
Buy a $4,000 Home With
$4,000 Cash Payment:
Interest and CurtaiI on $4,000
mortgage with monthly pay
ment of $3.50 per $1,000 $4,000
Taxes Cd. c., SITS per $1,000
on $500 valuation on--------- 1926
Water rent ------------ 125
Insurance 40
Repairs, 2 per cent on $500"
cost of house ------------ 1l00
Total monthly charges 1890 $3.50
'The difference between value of the
house, $4,000, and $4,000 total cost of
the home, consists Of lot. architects fees,
builders profit, ETC.
This table shows that one who
handles his money carefully can
acquire a $4,000 home on an in
come of $1,000 annually. Remem-
Der that on the average one-half
of $50 monthly mortgage payments
goes toward paying off the $4,000
Indebtedness, that this is money
saved. The repair expense will be
practically nil the first three years
Only $3.50 of the total monthly
cost of $3.50 represents what is the
equivalent Of rent. This is less than
20 per cent of the monthly income
and is we'll within sound budget re-
quirements. The total outlay. in
cluding the amount you save, is only
80 per cent of income.
Longer Term Possible.
There are many financing meth
DDS that differ from this example,
which pays out in about IS years. A
longer term, say 20 years, reduces
the monthly outlay, but increases
the total interest. A shorter mort
gage makes the monthly outgo
greater, but in the long run it saves
because less interest is paid. If a
buyer has less than 20 per cent of
the purchase price in cash his
monthly payments will be more
than figured here. Suppose you had
only $1,000 cash to buy this home,
then it would be necessary to give
a second mortgage for $1,000, with
payment of approximately SIG
month for, say, five years on that
mortgage. For the first five years
under this plan monthly outgo
would be $102.50, or about 81 per
cent of income. This is too large a
burden.
Here's a simple rule to follow:
Don't pay more than three times
your assured annual income for a
home. You will be more comfort
able financially if the price is some
what less than this. If you start
to buy a home that costs, for ex-
ample, as much as four times your
annual earnings you are courting
trouble. The monthly payments
will throw your budget out. AS long
as things go smoothly you may get
by with it. Let there be, however,
prolonged sickness, loss of a job
or some other disaster which ma
terially cuts your income or in
creases your expenses, then you
will have difficulty meeting your
payments.
And that may cause you to lose
your home.