Raise your hand if you have ever used a "housing affordability" mortgage calculator to determine how much house you could afford. Wow, that's a lot of hands. Did you know that all of those "housing calculators" are/were/and always will be wrong? Yeah, that's not good. And if you acted on the "advice" that you learned from that calculator, then you may be living in a house that isn't exactly affordable.

The major issue is that mortgage calculators often allow (recommend) that you allocate up to 33% of your gross monthly income to a mortgage payment. I don't know about you, but I spend my net income, not my gross income. Pete the Planner recommends that you only allocate 25%. This is a HUGE difference. And don't get your math twisted, it's not just 8%.

Let's take a look at an example. Let's say that you have a household income of $70,000 per year.

That would mean that 33% of your gross monthly income would be $1,924

$70,000 / 12 = $5,833

$5,833 X 33% = $1,924

In contrast, 25% of your net income on $70,000 would be approximately $1,020.

$70,000 X 70% (30% for taxes and benefits) = $49,000

$49,000 / 12 = $4,083

$4,083 X 25% = $1,020.

That means that a mortgage calculator would tell you that you could afford $1,924, and your trusty Pete the Planner tells you that you can afford $1,020. That is a difference of $904 per month!!!

Therefore the difference between 33% of gross and 25% net is actually 15.5% of gross. HOLY CRAP!!!