When I purchased my first home in the 1970s, your PITI could not be more than 25 to 28 percent of your gross income. PITI is the mortgage industry’s term for a homeowner's monthly payment on mortgage principal, mortgage interest, property taxes and insurance. According to Google, the current industry standard is that a borrower's PITI should add up to no more than 28 percent of his gross monthly income. I have to say that surprised, but also encouraged, me — because, as a Bankruptcy Judge in the early 2000s, I could swear that I frequently saw ratios much higher than that. However, Google also states that FHA's maximum qualifying debt ratio for borrowers in 2018 is 31 percent.
That being said, I was speaking with a high school business teacher recently about mortgages, and he told me a familiar story. He said that he had totally crunched the numbers (like only a business teacher can), and he knew exactly the maximum mortgage that he could realistically afford. When he went to a bank to apply for preapproval, the bank said that was fine, but that he could “afford” an $80,000 higher mortgage. I have heard that story far too often.
The lesson is, you crunch the numbers for any debt that you are looking at incurring, including automobile loans, student loans and mortgages, based upon YOUR REALISTIC PROJECTED BUDGET. That way you, not someone else or some ratio or algorithm, will determine what you can afford. Only you know your real spending and saving habits. Remember, the only good debt is debt that YOU have determined that YOU can afford to repay, and YOU have your own realistic plan for how to pay it back.
On a different subject, that has nothing to do with personal finances, but is a story of kindness that I feel I have to tell. I admit that I am completely technologically challenged. As if that were not enough, apparently it is now universally known. I was at a local high school recently for a number of presentations, and, as he always does, the head of IT, Mr. Doug, stopped in before the first presentation to see if I was OK. After the presentation, I looked down on the desk and I found a note with his cell phone number on it so that I could call if I needed help. Thank you.
On another subject, this is one of those stories where something happens to you, you tell a few people, and they tell you all the people they know with a similar story. This one, about Frontier, has an important lesson, which is, read everything.
I generally keep records of paid bills for about nine years, and periodically throw the older ones out. This month my Frontier bill — yes, remember I am technologically challenged and still have a land line — was over $51. My memory and records indicated that since September of 2009, my monthly bill was always between $32 and $34, so this was almost a 55 percent increase. Actually my memory was that it was between $32 and $34 since we moved into the house in 2001. When I called, I was told that I had just come off my previous “plan.” I said that I didn’t know that I was on a plan, but, in any event, how was I supposed to know that I was coming off of a plan that I didn’t know I was even on. Apparently, there was a notice somewhere on Page 4 of a prior bill. Of course, since the bill has been the same for 17 years, I never read or kept page 4. They were very nice — how many land line customers do they have? They retroactively put me back on the plan for long enough for me to explore other options, and they credited my bill. I suggested that since they are a telephone company, for dinosaurs like me, they might want to leave a message on our answering machines in the future. The representative laughed. As I indicated, when I told my story to others, I found out that many other customers have had the same experience with Frontier.
The lessons are, read everything, and if you are on a phone, cable, internet, or other plan, know when it expires, and explore your options, financial and otherwise.
On a final subject, when you read this column there will be a little over one week until Christmas. Even though I know that you have been bombarded by the print, radio and television media with ways to reduce you holiday spending and any resulting debt, I feel that if I don’t weigh in at all, I may have my contract terminated. (By the way, I don’t really have a contract.) We have discussed this subject for years in this column, but here are some ideas for any last minute holiday spending:
• BJ’s Wholesale Club and Costco have some third-party retailer gift cards available at a discount for members. In some cases there are major discounts on gift cards available both in-store and online. People love gift cards if you select the right ones for them.
• When you are out looking for those last minute gifts, resist the temptation to buy a few things that you see for yourself. I watch that happen all the time. If there is something that you really “need,” or more likely just “want,” maybe you could wait to see if it goes on sale after the holidays.
• Make sure that you have a list and a budget for your last minute shopping, and use cash as much as possible. You may decide that there are some things on the list that you really don’t need to lay out your cash for.
• Of course two of the best things that you can do are to start saving in January for next year, and look for sales and other discounts, in store or online, throughout the year to save money and cut down on all the craziness next year.
John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program. Find his previous weekly columns at http://www.mpnnow.com/search?text=Ninfo or at http://www.monroecopost.com/search?text=Ninfo.