Post # 1
Just wondering how does the money you spend on your mortgage or rent compare to your salary? I just read an article saying your mortgage/rent should not be more than 28% of your gross salaries. I calculated our mortgage on the house we are buying to be at 15% (£800pm vs £63,000 combined gross salaries), which seems okay as we currently pay 21% of our salaries on rent now and money is quite tight, with not many luxuries and not much to spare at the end of the month if we go out and socialise etc.
I can’t imagine what it would be like spending 28% or more. I should note though that I live in the UK and pay 10% of my salary into a pension, so I only actually take home 70% of my pay due to taxes, student loan payments and other deductions etc.
Post # 2
I guess it depends on your other expenses and things. 28% of your salary is a lot worse when the other 72% isn’t a lot and is eaten up by mostly bills etc. 28% on a big salary still leaves a lot left over.
I just worked out that ours is 20% of our joint take home salaries. It’s probably on the higher side but we have been paying London rent for years so a £900 mortgage feels really low for us. It helps that we have low bills outside of our mortgage, no car, no debt, no kids, barely any travel costs etc.
Post # 3
Ours is about 10% of our gross salary. 28% seems ridiculously high to me. If we went that high it would be 45% of our net income. I think for average income families it just wouldn’t leave much room for other expenses or emergencies. It would also leave you pretty tight with even a small increase in interest rates.
Post # 4
ariesscientist : you should be deducting the debt repayments from your salary to get a more accurate percentage. Where I am from, the rule is no more than 25-30% of your gross unencumbered income (before taxes but after your debt). People routinely think that they earn enough for a mortgage and end up being rejected by lenders because they haven’t accurately calculated their payments vs. income. We pay 17% for our housing now. When we first got our place it was 22% until I increased my personal income. That also is a good point, remember that between a home purchase and complete mortgage repayment, your income will likely see an increase. Especially once your debt is gone.
Post # 5
I have never thought it makes sense to compare expenses to gross income. That money isn’t available to you for spending so why try to factor it into your budgeting? It makes much more sense to calculate as a percentage of net income. Our mortgage is about 20% of take home pay and we are actually in the process of downsizing to a more modest home so we can focus on saving more.
I do think 28% of take home is probably reasonable for most people but as PP pointed out 28% of gross is a huge percent of net. People should really avoid spending 50% of take home on housing unless they are in a very HCOL area where it’s unavoidable.
Post # 6
Ours is 18% of our gross right now because Im currently not working (taking a year off after having my son). If I go back full time, it’d be 11% of our gross, but I probably wont, so it’ll be somewhere in between there and we are quite comfortable even currently. I think the thing to remember about percentage of income to housing is that the percentage only tells half the story. The actual numbers make a huge difference too. Someone making 5k/month could say they are paying 20% and they’d have 4k left over. But someone making 10k/month could say they are paying 40%, which seems like a lot more, but thyey’d also have a lot more, 6k, left over. (Neglecting taxes and what not, but still, the idea is the same)
If it’s less than your rent that is afordable, it seems like it should be affordable? I’d start with your NET monthly pay, subtract out bills and what not and see what’s left. Include a buffer and savings, etc and determine what your comfortable number is. Dont just go by what the bank says they’d loan you, or compare to others gross pay vs mortgage/rent percentages… it could be misleading based on what I said above.
Post # 7
We’re paying 25% of our net income (or 14% of our gross income) right now, and that is comfortable for us.
But for several years in my 20s I was paying over 50% of my net income to rent, simply because we live in a really expensive city and I wasn’t earning much. It obviously wasn’t ideal, but in many expensive cities you don’t have any choice but to spend more than the recommended amounts, especially if you’re a student or working in a low paying field.
I think the 25-30% rule of thumb is supposed to be an upper limit of what is “affordable,” which hopefully incentivizes people to realize they can’t really afford a huge mortgage payment. It’s also often a guideline of what you will get approved for (though I’ve heard of people getting approved for much more). Another number I’ve heard is 36% of income to all debt repayments including mortgage, student loans, etc. Obviously in an ideal world you’d pay as little as possible towards any of this, but the guidelines exist to seem realistic to people with low salaries, HCOL areas, or a lot of debts.
Post # 8
ariesscientist : we are at about 13.5% of gross for PITI and I can’t imagine spending more. We wouldn’t be able to have a second kid if our house was more expensive. Currently daycare is about 11% but it will jump to over 20% gross when we (hopefully) have another next year.
I will say we live in a hcol area and our particular market has blow up so much that we would not be able to buy in our town now. We got an appraisal last year and our house is worth double what we paid for it just under 6 years ago. I do sympathize that not everyone was able to time it to buy when the market was low and therefore are spending a lot more on housing. But woof.
Post # 9
I calculated ours with our monthly combined take home and it worked out to being around 10% of our total monthly take home.
Which makes me feel better about buying a new house and potentially speninh a little more.
Post # 10
Ours is 25% of take home pay. Cost of living is expensive in our area and we’d rather pay more in rent/mortgage and live in a nice home in a safe area than have lots of spending money but a not-so nice home. It’s all about prioritizing what’s important to you!
Post # 11
Our mortgage, property taxes, and homeowners insurance is about 18% of our take home pay. I calculate our take home pay as the money in our bank account after taxes and our retirement contributions, which are taken straight from our paychecks so they never hit the bank account. It’s our starter home and we intentionally bought less house than what we could afford, as we are in savings mode for the next few years. As a PP mentioned, it’s all about prioritizing what’s important for you. Right now we live in a small home in a bad school district, which doesn’t bother us because we are still TTC. In a few years our priorities will be different and I expect our forever home will be a larger portion of our take-home pay.
Post # 12
Our mortgage payment is 15% off our gross income and it looks like 21% of our take home pay. We are also spending ~1400 USD per month on students loans for now, but and still managing to save about that much or more as well each month. I can’t wait until those loans are gone!
Post # 13
Ours is 13% of gross but 25% of actual take home (after taxes, 401k, health insurance etc) I find that completely manageable and we are able to have a healthy savings outside of our retirement.
Post # 14
Mortgage/tax/insurance is about 3% of gross. When we bought this house (our second) we knew we wanted something large enough for our family of 6 but not ostentatious or crazy big. We live in a medium/high cost of living area. It’s the perfect home for us and we will pay off the mortgage this year. Then we will dump the mortgage equivalent into growing our college funds.
It’s crazy to me that we have friends with homes twice as big when I know it’s a stretch for them. And they have 1 or 2 kids. I don’t want to clean 6 bathrooms, thanks. And the idea of us spending 28% on our mortgage is certifiable.
Post # 15
We are in the process of buying a bigger house, and our new mortgage will be about $1k more a month. With our new mortgage, we are about 21% of our net. However, that doesn’t include mine or my husband’s bonus money, as that is never guaranteed. If I base it on what I estimate us to earn, it’s about about 16%. I’m a little nervous having our mortgage increase so much, but I’m sure we will be fine.