You may have heard it—the rule that says “Don’t spend more than 30% of your gross monthly income on housing.” The idea is to ensure you still have 70% of your income to spend on other expenses.
Sounds good. But is it realistic for you?
That depends on your financial situation. If your yearly income is $500,000, you might be able to pay 40% for housing. If it’s $30,000, 25% might be a better target.
The 30% rule, in real dollars
The chart below shows what monthly housing expenses would be for different income levels, based on the 30% rule. Find the income level that most closely matches yours. Keep in mind that in addition to your mortgage payment (principal and interest), your monthly housing expenses should also include your property taxes, homeowners insurance, private mortgage insurance (if required), and any homeowners association fees.
