I'd always heard no more than 30% of your monthly income (gross, not actual cash after taxes have been taken out) should be spent on housing. We're looking to buy for the first time and I'm trying to figure out what a good conservative estimate should be for our mortgage payment to see what we can really afford. 30% sounds like a lot to me, especially given that I live in a *very* high-tax area of the country. Wondering what others do--if you live in an expensive city/state, do you adhere to this rule, or do you think it's safer to go lower?
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Mine has usually been roughly 20% throughout my professional life in a moderately high but not extremely high cost of living area (suburbs near major city). When I was in graduate school and I was on a very reduced budget, sharing apartment with a roommate, it was roughly 30%. Your realtor can help with some of the budgeting and understanding true costs including typical utilities, taxes, and insurance. The 20% I quote here includes our property taxes and homeowners insurance as we pay that as part of our mortgage.
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We live in the Greater Boston area and currently, our monthly payment (mortgage + property taxes + home insurance) is about 17% of our gross monthly income. That being said, when we bought our house, it was closer to 23% - it's just that our income has gone up while our house payment has stayed the same.
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We pay 28% of our gross income for our mortgage payment, which includes not only P&I, but taxes and insurance. So, we would have to add utilities and any unforeseen costs on top of that. We live in the country about 2 hours north of a metropolitan area, near a smaller city.
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We go lower (see below). Where we live property taxes can be over 30k for a 1500 sq ft LOT size. Urban, high cost area. I think the norm for where we live if you factor in things like taxes, insurance (and in some areas flood is required too) and the mortgage the monthly outlay is probably close to 40-50% which is just insane imo. Taxes are rising yearly, flood insurance could potentially go up, yikes.
For all of the reasons I listed, we continue to rent. -
Ours is about 18% (mortgage + PMI + property taxes) of our gross income. That amount is very comfortable for us with two car payments. We live in the Dallas area.
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@LCTBQE: I think 30% should be your max inclusive of everything house related like mortgage, taxes, insurance, HOA, utilities, cleaners, landscaping, pest control, plus savings for home repairs and maintenance. Our PITI (principal, interest, taxes, and insurance) is at about 20% of our income but once you add all the other costs in, we are just under that 30% figure. We live in Northern California and we have high state taxes.
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I believe when we bought, we were spending somewhere in the range of 25%. We live in a very expensive area, and our house was a stretch for us, as we were just beginning our careers. Since our salaries have increased, we are now spending more like 15%. We spend far more on daycare than on our house right now, so I'm glad we are in the lower range at this point.
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We are at 10% and are super thankful to be this low considering how much we pay in childcare! That 10% includes re taxes. When we're finally done paying for full time care I want to upgrade to our dream home but would still not go above 30% for that. We like our flexibility too much to spend it all on a house.
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@gingerbebe: I agree, I think 30% is more your general living expenses that you need to keep a roof over your head.
Our actual mortgage (incl. prop tax and insurance) is about 16%. But if you factor in the rest of things like utilities and maintenance its much closer to 25%
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We just bought our house but it's going to be just over 26% this year. That's with me only working PT. We anticipate more increases in income so the % will go down, but considering when we were in college and working and living in one of the highest COL areas we paid more like 50%... I'm ok with where we are for now!
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12% includes our principal, interest, prop taxes, prop insurance etc. Our income is not the same every month- so it is based on a year.
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My house note including taxes and insurance is about 18% of our gross pay. I don't live in a high tax area. But our school systems are not the best and therefore we will be sending our three kids to private school. This was the highest house note I felt comfortable with. If I didn't have to pay for kids tuition for the next 20 years, it would be a different story.
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@Mamatimes3: good point. We paid a lower % last year but if we stayed in that area we'd need private school.. and with #3 on the way switching to all private school was unaffordable for us.
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Our mortgage (+taxes+insurance) is 18%. But after adding in utilities, satellite/internet, it's 23%.
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About 25%
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It is 20% of my income (house is in my name only, and I pay for it by myself), but if you count OH's salary it is 13%. I wouldn't be willing to go any higher than 20%.
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I'm in the greater Boston area and we are at 15%
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Ours is 16% - of everyone we know locally we definitely bought the most modest house (and needed to put a lot of work into it) but I'm super happy to have such a comfortable ratio.
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Our PITI is currently around 10% of our gross combined income, but property taxes in our area have gone up astronomically in the past couple years and it appears they will continue to do so (ours have increased over $2000 in 3 years). When you consider maintenance, repairs, etc, it gets expensive fast. I'd aim to spend no more than 20%.
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Our PITI is just below 7% of our gross income. We bought during the housing market crash.
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Our PITI is around 17 to 20%. Our income is a little weird/variable because our bonuses are based on company performance.
We never really used those recommended percentages though. I just knew (or thought I knew) how much of a payment we could afford. What I didn't account for was all the extra expenses a big house comes with. Pest control, yard costs, huge things breaking at the 10 year mark (furnace, water heater, AC, and well pump). We've spent $10k since last winter just on repairs. After the AC went during a heat wave I was ready to burn the whole place to the ground and walk away
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@ShootingStar: ugh we are currently in that AC dilemma. It was supposed to be covered under the home warranty but getting those people to do anything we were given basically two weeks to wait. Sooo I called someone else who is coming tomorrow. It's been in the triple digits and I am getting so moody.
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Our income is variable but based on gross for last year which is tracking to be similar this year, our mortgage, insurance and property taxes total about 5.5%. We live in an area that is experiencing insane growth and a soaring housing market.
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15% including interest taxes and insurance (a little less if you count bonuses)
ETA: and our daycare bill is almost the exact same amount! -
Around 6% (including taxes). We didn't want to be house poor.
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@travellingbee: After baby #2, our daycare bill will be the same as our mortgage as well. Depressing.
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Ours is around 15%, but it was closer to 30% when we first bought. Promotions and raises as well as a refinance have helped bring that number down.
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@ShootingStar: @2littlepumpkins: We really need to build up a savings fund for home repairs but until our middle child starts school (one more year) its going to be pretty tough. I'm thinking until that point we will keep the home warranty?
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Exactly at 30 percent (with insurance and taxes). In 9 years we will be at 0 percent and counting the days. That will create a huge change!! Along with raises, we also refinanced into a shorter mortgage term with lower rate but bigger payments which evened out the percentage (just checked-and was surprised it was about the same as when we first bought).
I recently added disability insurance in the event that things happen to cover our house payments and almost all expenses. Not sure if we will keep it but it helps me feel safer-for now. -
We rent still and our rent is currently 17% of our gross income.
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It's changed a lot over the years. When I first began working and was living in NYC, it was over 50%!
It's now less than 10%.
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Ours is around 30%. We purposefully bought an expensive home though because we were getting wrecked with taxes and needed the deduction.
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@LCTBQE: that's so exciting that you are thinking of buying a home. We just got into ours a few weeks ago and it's been such a good experience
I think the 30% is a good rule, definitely leaves more cash available for "surprises" although I know it's harder to do in certain cities.
We are sitting at about 28% which includes the mortgage, property tax & utilities
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We just refinanced (slightly higher rate but overall lower payment because we have more equity), and now our all-in housing costs (mortgage, taxes, insurance, monthly building HOA) is 14% of our monthly gross.
But our monthly gross is really not an accurate way to measure anything. Once you deduct all our retirement savings, investments, extra house payments, college fund, my college loan, health insurance stuff and health savings accounts, our net pay is so so so much lower.
And forget about childcare. Childcare is why we feel so broke. But for us, in our area that is pretty high COL and rents match that, it's cheaper for us to own. A similar apartment to rent would cost us $500-700 a month more to rent. Plus we build equity and get a larger down payment for wherever we go next.
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Just the mortgage and insurance is about 12%, with the bills for electricity and such probably 15%? But it wasn't that low when we bought the house, our income just went up. It was probably 20% of our income when we bought it. We live in a relatively low COL area. Our daycare for 2 is more than the 15% for housing. Where we live (lower COL area) I wouldn't go higher than 20%, personally. I can understand high COL areas might need to go higher though.
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@Anagram: great points. I haven't calculated my percentage, but I think it's not great compared to many of the above. But rent where we live would be easily double our mortgage!
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Thanks for replying, everyone, this is so helpful. Right now we are renting at 7% of our HHI and have been aggressively saving for years, so to us jumping to 20% (let alone 30) seems daunting, especially with full time childcare. I know we have to get on board with spending a lot more if we ever want to own, but it is so hard to know what a responsible figure is, especially given that we are taxed practically to death here (NYC) and COL is extreme, not even considering property taxes. Definitely sounds like 30% is not what most people do
@gingerbebe: @ShootingStar: thanks for the thorough explanations about total cost and maintenance. Right now we're trying to decide between city condo and suburbs house. It sounds like the house is cheaper (def would be nice to spread out) but I've never owned before and really hadn't thought about the furnace/roof/tree removal/etc, let alone aesthetic updates I'd probably want to do over the years.
@mrsjd: that's an interesting tactic--I want to buy the most expensive thing we can reasonably afford, get a fixed rate, watch interest explode and then pay it off with diluted money
@T.H.O.U.: aghhh I wish I lived in Florida and didn't get wrecked by state AND city income tax. @Littlebit7: are you in Bergen county, by any chance? We went to an open house there recently and the property taxes on it were 30k a yearJesus what a joke
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We never looked at it from a percentage of gross income cause taxes are such a huge factor. We calculated from a net income (after taxes, maxed out 401k, and Roth) and then determined how much we felt comfortable spending on a mortgage per month, and worked that backwards to a price range. Just running the numbers now, when we bought we were at around 28% of gross in MA.
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@LCTBQE: Hudson. Same same as far as taxes. Barf.. at least some bergen county schools are good. Here, I don't actually know what the ridiculous property taxes are actually paying for in our municipalitiy. You can probably guess where I live, its on the hudson river.
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