For many Americans, housing is their largest monthly expense. But even so, it's important not to go overboard on housing-related spending so you have enough money left over to cover your remaining bills. Spending too much money on a home could put you at risk of falling behind on your mortgage payments and eventually losing your home to foreclosure.
As a general rule, it's a good idea to keep your monthly housing costs to 30% of your income or less. And that doesn't just mean to keep your mortgage payments to 30% of your pay or less. Rather, that 30% should include additional recurring expenses such as:
- Property taxes
- Homeowners insurance
- HOA fees, if applicable
But what if you're looking at homes in a really expensive housing market, and it's pretty much impossible to keep your housing costs to 30% of your income? Is it OK to go higher -- as high as 50%?
Generally speaking, it's not wise to commit 50% of your income to housing costs. You won't be leaving yourself with a lot of money left over for your remaining bills, so you might struggle to pay them. That could lead to costly debt in non-mortgage form, like credit card balances you have a hard time keeping up with.
However, in some cases, it may be OK to spend 50% of your income on housing. You'll just have to make sure your remaining expenses are notably low.
When you have to spend more for a home
Zillow reports that the average U.S. home value is $347,716. But in some parts of the country, that won't even buy you a closet.
More: Check out our picks for the best mortgage lenders
Take San Francisco, where the average home value is a whopping $1,236,502. If you're buying a home in an expensive city, it may be almost impossible to keep your housing costs to 30% of your income due to the local market.
Now granted, if you're buying a home in an expensive city, then chances are, you're earning an above-average salary to compensate. But that still doesn't mean you'll manage to keep your housing costs to 30% of your income.
It's important to be realistic about your local housing market. If sticking to 30% of your income isn't feasible, it's OK to look beyond that threshold as long as you've crunched the numbers and are certain you can afford the payments you're taking on.
When you might get away with spending 50% of your pay
It's one thing to spend, say, 38% of your income on housing instead of 30% because your local market is inflated. It's another thing to spend half of your income on housing.
But again, if you're in an expensive housing market, that may be your reality. You may also be OK to spend half of your income on a home if your remaining expenses are low.
Let's say you live in a city and walk or bike almost everywhere so your transportation costs are next to nothing. AAA puts the average monthly cost of owning a car at $1,015. If you're not spending much money to get around, it gives you more leeway to spend on a home.
Similarly, let's say you're childfree and have no intention of having kids. Care.com puts the average weekly cost of daycare for an infant at $321. But if you're not paying for child care, or any expenses related to having a child, then you should be able to more comfortably spend extra on a home.
Finally, perhaps you don't tend to dine out often because you love to cook, and that your go-to entertainment is jogging at the local park or curling up with some good streaming content rather than attending concerts and going to the theater. That's a less expensive lifestyle in general, which could mean that you'll be fine spending half of your pay on a home.
Generally speaking, it's not a good idea to spend 50% of your income on housing. But that doesn't mean that it's never OK. Under the right circ*mstances, you can commit to that sort of housing expense without necessarily winding up in over your head.
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FAQs
It's generally advisable to keep your housing costs to 30% of your income or less. Spending 50% of your income on housing could cause you to fall behind on mortgage payments or other bills. If your non-housing expenses are notably low, then it may be OK to spend half of your pay on housing.
Is it okay to spend 50% of income on a mortgage? ›
The monthly income rule
"You want to make sure that your monthly mortgage is no more than 28% of your gross monthly income," says Reyes.
Is it bad to spend 50% of income on rent? ›
Spending more than 50% of your income on rent isn't recommended, as you'll be living paycheck to paycheck. You won't be able to save or invest money for the future. If you're currently overspending on rent, solutions include raising your income, finding more affordable housing, or getting a place with a roommate.
Is 40% of income for housing too much? ›
Rules differ among experts, but it's often advised that homeowners calculate their mortgage so that they spend no more than 28% of their gross income on payments.
What percent of income can be spent on housing? ›
To determine how much income should be put toward a monthly mortgage payment, there are several rules and formulas you can use. The most popular is the 28% rule, which states that no more than 28% of your gross monthly income should be spent on housing costs.
Can I afford a 300k house on a 60k salary? ›
An individual earning $60,000 a year may buy a home worth ranging from $180,000 to over $300,000. That's because your wage isn't the only factor that affects your house purchase budget. Your credit score, existing debts, mortgage rates, and a variety of other considerations must all be taken into account.
Is 30% of income too much for mortgage? ›
The most common rule for housing payments states that you shouldn't spend more than 28% of your gross income on your housing payment, and this should account for every element of your home loan (e.g., principal, interest, taxes, and insurance).
What is the 50% rent rule? ›
The rule suggests that about half of the property's rental income should cover expenses, and the other half is an estimate of the property's net operating income (NOI). The 50% rule is a starting point and not a strict formula. Different property types, locations, and market conditions can affect actual expenses.
Can I spend 40% of my income on rent? ›
Spending around 30% of your income on rent is the golden rule when you're trying to figure out how much you can afford to pay.
Should I spend half my take-home pay on rent? ›
One popular guideline is the 30% rent rule, which says to spend around 30% of your gross income on rent. So if you earn $3,200 per month before taxes, you could spend about $960 per month on rent. This is a solid guideline, but it's not one-size-fits-all advice.
One rule of thumb is that the cost of your home should not exceed three times your income. On a salary of $70k, that would be $210,000. This is only one way to estimate your budget, however, and it assumes that you don't have a lot of other debts.
Is 30% on housing too much? ›
Going above the recommended threshold of 30% of your gross monthly income can make it harder to cover other expenses and meet savings goals. However, personal rent affordability can vary depending on a range of factors such as overall budget, outstanding debt, geographic location, and other housing-related costs.
How much rent can I afford on $70k? ›
So you're looking at somewhere near $3791 after tax per month. To be safe, a rule of thumb is that you should aim for 1/3 of your salary or less on rent. That will leave the appropriate amount for spending money, insurance, transportation, etc etc. So my suggestion is to look for $1263 per month or less.
How much does the average American pay for housing? ›
Housing is by far the largest expense for Americans. Monthly housing expenses in 2022 averaged $2,025, a 7% increase from 2021. Over the course of 2022, Americans spent $24,298 on housing on average. With housing prices cooling off somewhat in 2023, it remains to be seen how much spending will change year over year.
What is the maximum you should spend on housing? ›
The general rule of thumb is that housing costs should be no more than 30% of your gross income. This includes rent or mortgage payments; homeowner association fees; and utilities like gas, electricity, water, and internet. The government defines “affordable housing” as costing no more than 30% of your income.
How much mortgage is too much? ›
The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (e.g., principal, interest, taxes and insurance).
What percentage of income is OK for mortgage? ›
The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (e.g., principal, interest, taxes and insurance).
Can you get a mortgage with 50% debt-to-income ratio? ›
Your debt-to-income (DTI) ratio is a key factor in getting approved for a mortgage. The lower the DTI for a mortgage the better. Most lenders see DTI ratios of 36 percent or less as ideal. It is very hard to get a loan with a DTI ratio exceeding 50 percent, though exceptions can be made.
Is paying 50 extra on mortgage worth it? ›
Doing so can shave four to eight years off the life of your loan, as well as tens of thousands of dollars in interest. However, you don't have to pay that much to make an impact. Even paying $20 or $50 extra each month can help you to pay down your mortgage faster.
