2 Capital Journal Building- Section, Friday, March 10, 1950
THE HOUSE YOU CAM AFFORD
Key to Monthly Costs
Is Your Toke-Home Pay
How much of a home can a family afford?
In the last analysis it depends on the family. If your family
Is thrifty and willing to sacrifice for a home, that is one story.
But it you are accustomed to luxuries, resent budgeting your
expenses, frequently fail to make ends meet and resort to bor
rowing before payday, look out.-
Then again, it depends on
what you start with your own
savings, or a legacy, or other
money easily come by.
For the average family, start
ing virtually from scratch and in
dead earnest on owning a home
there are some rules, even
though the best rule is to fig
ure it out yourself.
It used to be figured that a
house priced between one-and-
a-half and two-and-a-half times
your annual income was a safe
buy. But prices for houses, the
cost of living and higher income
taxes have changed this.
The reason is that under such
a rule a man earning $60 a week
would have been given the go
ahead signal on a house costing
from $4,680 to $7,800. Today
he'd have a merry time finding a
suitable house to meet the min
imum figure and he'd have to
have on unusually thrifty fam
ily in order to make ends meet
under the maximum figure.
That rule would also permit
man earning $100 a week to
buy a house costing $7,700 to
$13,000, and he'd probably have
some trouble in swinging the
maximum deal.
Then there was another rule
that monthly payments, like
rent, should not exceed one
week's pay or 25 per cent of
monthly income. Since monthly
carrying charges on a 20-ycar
mortgage, plus real estate taxes,
water charges and fire insur
ance, could be figured roughly
to amount to 1 per cent of the
amount of the mortgage, this
rule made it easy to say that the
$60-a-wcck man could carry a
$6,000 mortgage.
But those monthly payments
did not cover heat, or upkeep,
utilities, travel to and from
work and other fixed charges.
So when food, fuel and income
taxes went up, and interest rates
began to stiffen, this picture also
changed.
A conservative banker re
cently said that when arrang
ing mortgage loans he advises
the average home buyer not to
exceed 20 per cent of his month
ly take-home pay when figuring
what monthly payments he can
afford comfortably. The cost of
fuel, gas, electricity, telephone,
commutation and other fixed
extras prompt this 20 per cent
rule.
Take-home pay Is the only
realistic basis on which to fig
urc. There are so many deduc
tions made from most pay
checks, and they vary so widely,
that each family must figure this
out individually. The $60-a
week man, who has a wife and
two children, may have a take-
home pay of $57.90, if his in
come tax is the only deduction
The $100-a-wcek man with the
same size family may take home
$91.30 after income taxes. But
11 nospuauzation, pension con
tributions, group insurance, un
ion dues and other deductions
are made, the amount to figure
on for home buying is much less.
Fireplace Flue
A fireplace requires a separ
ate flue with cross-section area
no less than one-tenth the area
of the fireplace opening.
Illinois produces most of the
redtop seed crop in the United
States.
Budgeting your home pur
chase in terms of take-home
pay, or actual net income, is
sounder than trying any rule to
fit a total house price to your
annual income. If a $60-a-week
man has a take-home pay of
$55, his monthly net income
runs around $238 and 20 per
cent of this is $47.60. According
to the old rule of thumb, with
this amount representing 1 per
cent of the face of the mortgage.
t indicates far less than a $6,000
mortgage.
But the amount a man can
pay in cash is what throws off
all rules of fitting prices to an
nual income. Also the more you
can pay in cash, the more you
save in carrying charges.
The best policy, in figuring
your home buying budget, is to
make ample allowances for all
extras not only incidentals di
rectly connected with the deal,
such as legal fees, title search.
surveys, and other charges, but
also additional furniture, cur
tains, accessories and equip
ment not included a refriger
ator, kitchen range, washing
machine, etc.
If you budget yourself too
closely it may mean no movies,
or it may mean real hardship in
the event of unforeseen medical
expenses.
The Veterans Administration
warns GIs that because of ex
tras, their mortgage payments
may represent only 50 to 65 per
cent of the total monthly cost of
owning and running a home.
Home Payments
Must Be Prompt
If you buy a home on monthly
mortgage payments, do not ex
pect leniency on collections on
the part of the bank or savings
association holding your mort
gage. Chances arc you will not be
billed for payment. You are ex
pected to remember and make
the payment before the 10th of
each month, or whatever date is
agreed upon. If you slip up, you
can be charged interest not only
on the outstanding balance, but
also on the interest already
charged and payable on the first
of Uic month.
FLAME MAY BURST
FROZEN WATER PIPE
In thawing frozen water pipes
a steady flame like that of a
blowtorch in one spot is likely
to burst the pipe. Burlap
wrapped around the pipe and
repeatedly soaked with boiling
water will thaw the ice without
danger.
If a pipe has already burst,
the water supply should be shut
off, all faucets opened and
islumber called.
How Gf Can
Buy Without
Cash Down
World War II veterans can
usually buy a house with no
cash payment required. This
also goes for WACs, WAVEs,
SPARs and women marines.
The Veterans' Administration
will guarantee up to 50 per cent
of a home loan, or up to $4,000,
whichever is less. Or in com
bination with an FHA insured
loan on a more expensive house,
the VA will guarantee a second
loan covering the cash payment
needed up to 20 per cent, or
$4,000 or the purchase price.
The VA guarantee is made to
lending institutions to encour
age them to make loans to vet
erans on favorable terms. The
VA does not make the loan.
These loans can be applied for
through banks and savings as
sociations at any time up to 10
years after the end of the war.
Interest on the GI portion of
the loan Is 4 per cent on an
FHA mortgage it is 4 lz per
cent plus of 1 per cent FHA
mortgage insurance premium.
IX a new home is appraised by
the FHA at more than $0,000,
the FHA will insure a loan up to
90 per cent of the first $6,000 of
value, plus 80 per cent on the
balance between $6,000 and
$10,000.
If the house is not new, the
FHA will insure a loan up to 80
per cent of the appraised value.
In either case, a loan guaran
teed by the Veterans' Adminis
tration may go as high as $4,000
or 20 per cent of the purchase
price, whichever is less.
Special Life Insurance
Covers Home Mortgages
Statistics show that one out of every eight home buyers dies
before his home is paid for.
Furthermore, the average home buyer seldom has enough life
insurance to cover the mortgage on his house.
The life insurance a man may have is usually regarded as
a nest egg for emergency to$
support his widow and children
until other means of support
may be arranged by them. If
this fund must be used to con
tinue payments on their home,
it will dwindle all the more ra-
pidly. If the payments are not
continued, the widow and chil
dren arc homeless.
To solve this problem and au
tomatically pay off a mortgage
in the event of a home buyer's
death, special low-cost insur
ance has been worked out. It
covers only that part of mort
gage debt still outstanding at
any given date. It is low in cost
because it runs for a compara
tively short term and decreases
in amount in proportion with
the mortgage. It is usually called
diminishing term life insurance.
i 77- i - 1
Savings on Income Tax
Worth While
The amount of income tax you can save in buying a home is
well worth figuring. It is actual cash saving, not an abstract
amount that accrues to your benefit in the distant future.
If your income tax is withheld from your salary or wages, you
get the money in the form of a rebate check. If you're in business
Sfor yourself your just keep this
Monthly Payment
Time Table
Monthly payments required
for each $1,000 of mortgage
loan, covering interest and pay
ment on principal, for various
interest rates follow:
Monthly Payments
At At At
4 & ft
M.r trace
Term
25 Yrs.
20 Yrs.
ts Yrs.
10 Yrs.
5 Yrs.
$5.28 $5.50
6.06 6.33 $6.60 $7.17
7.40 7.65 7.91 8.44
10.13 10.37 10.61 11.11
18.88 19.34
No bank or other lending in
stitution will compel you to buy
it, because the value of your
hou.se protects the mortgage
loan. If payments lapse, the
house is merely foreclosed and
resold to cover the mortgage
debt. But conscientious bankers
will advise you to have such a
policy for the protection of your
family.
Several insurance companies
write these policies. There are
two major ways to pay for them.
One calls for a single premium,
which once paid can be forgot
ten about. This single premium
can be financed in 24 monthly
payments.
Another system carries year
ly premium payments for the
entire term of the mortgage,
with each payment growing
smaller along with the diminish
ing debt.
Examples of rates for each
$1,000 of initial mortgage debt
on a 20-year monthly payment
mortgage are as follows for a
man 30 years old:
Single payment $72.42, or
$3.50 monthly for 24 months.
Reducing payment plan $8.30
per $1,000 for the first year.
$7.40 for the fifth year, $6.23 for
the tenth year, and $1.11 for the
20th year.
Rates for older or younger
men run higher and lower in
accordance with their ages.
to Owners
money in your pocket and item
ize, the deduction when filing
your return.
Since the average family bud
get will stand only so much of
an allowance for housing, whe
ther in rent or in payments on
a home, the income tax sav
ing of a home buyer is a real
advantage over the renter.
...
Take an example of a man
making $5,000 a year, and hav
ing a wife and two children. If
he had a mortgage of $12,500
his first year's carrying charges
would be $562.50 at 4 14 per cent
interest. Assuming his real es
tate tax to be $175, he would be
entitled to deductions of $737.50
on this score.
Then assuming that his family
had normal deductions for
church and charity, contribu
tions, other taxes, losses, medi
cal expenses, etc., amounting to
500, his total deductions would
be 1,237.50. On a joint return
his income tax would amount to
$226.18.
If this family rented, its total
deductions would be only $500.
The share of their rent that
went toward the landlord's
taxes and interest would not he
deductible to them. Their in
come tax would amount to
$348.60.
This means a saving of $122.
42 for the home owner, or
$10.20 per month.
If the same families had an
nual incomes of $8,000 the in
come tax saving for the homo
owner would amount to $143.78.
...
The attractive part of Income
tax savings in home buying is
that they are greater right now
in the early years of ownership.
For example, a 15-year mort
gage at 5 per cent calls for
monthly payments of $7.91 to
cover interest and amortization
on every $1,000 of loan. In the
first year an average of $3.98
out of those $7.91 payments goes
for interest and $3.93 toward
paying off the principal.
By the fifth year the average
monthly interest payment is
down to $3.11 and the principal
payment is up to $4.80. In the
tenth year the division will be
$1.74 for interest and $6.17 for
amortization.
So income tax deductions for
interest are most noticeable
when needed the most.
There are nearly 150,000 ra
dio stations of some 40 catego
ries in the U. S., of which only
4000 are classed as broadcast
units.
Expansion Attic:
Is It Worth While?
It may pay to think twice
before planning a house with
an expansion attic.
Will you ever finish off ex
tra rooms upstairs, or will
that prove to be just a dream
while you pay $3 or $4 every
month on your mortgage pay
ments because of that extra
space?
Architects have figured
that to be the cost of carrying
the additional cubage re
quired over a low pitched
roof with mere storage space
under the rafters.
The Dime Savings Bank of
Brooklyn, N.Y., made a sam
ple check of 139 home buyers
in a pre-war Long Island de
velopment and found that 42
per cent made no use of ex
pansion possibilities. Only 31
per cent added two rooms,
and 18 per cent expanded
merely by adding a garage.