You may have heard it—the old rule that says, “Homeowners shouldn’t spend more than 30% of their gross monthly income on housing.” The idea is to ensure they still have 70% of their income to spend on other expenses.
The intent is good. But is it realistic today?
That depends on your financial situation. If your yearly income is $500,000, you might be able to pay 40% on housing. If it’s $30,000, 30% might be pushing it.
The 30% rule, in real dollars.
The chart below shows what monthly housing expenses would be for a homebuyer, based on the 30% rule. Keep in mind that in addition to mortgage payments, monthly housing expenses also include property taxes, homeowners insurance, private mortgage insurance, and any homeowners association fees.
|Gross annual income (income before taxes)||Monthly housing expenses (30%)||Monthly money for other expenses (70%)|
Consider comfort levels.
Buyers are coming up with their own rules these days, based on their individual goals, priorities,and other debts. While the 30% rule may still work for some, each individual homebuyer should feel comfortable and confident with what they choose to spend on housing.
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