New housing proposal to bring homeowners relief

At the zenith of the housing crisis, homeowners have had to stretch their earnings to be able to afford their monthly mortgages.

Now, President Obama’s housing plan will help many borrowers reduce those monthly payments by 31 percent.

Given that the current economic crisis has turned a lot of financial assumptions on their head, people should start to consider how much of their income should go toward housing.

According to The New York Times, Joseph R. Birkofer, a financial planner and principal of Legacy Asset Management in Houston stated, “It’s different for everybody, but there are some norms.”

The Times also reported on an old standard, that many are thinking about reverting back to, the 28/36 rule.

If that rule is used, households should spend no more than 28 percent of their gross income on housing costs, and less than 36 percent on all debt.

The total includes obligations like car payments, student loans, credit cards and medical debt.

Many people are spending much more than that.

According to the latest available Census Bureau’s American Community Survey in 2007, 38 percent of homeowners with mortgages spend more than 30 percent of their monthly gross income on all housing costs.

That leaves little room for food, gas, transportation, utilities, childcare and other expenses like medical bills or insurance. 

Not to mention, the lack of ability to save for college and retirement.

The trend itself helps to explain why so many families are losing their homes to foreclosure today.

Kianta Key for the Editorial Board.