What Percentage Of Your Income Can You Afford For Mortgage Payments?
What percentage of your income can you afford for mortgage payments? Do you use gross monthly income or take-app德扑圈官方网址home pay? Learn how much house you can afford with simple rules based on your monthly income.
These questions often come up among first-time app德扑圈官方网址home buyers:

  • What percentage of my monthly income can I afford to spend on my mortgage payment?
  • Does that percentage include property taxes, private mortgage insurance (PMI), or app德扑圈官方网址homeowners insurance?

Today we tackle these questions to help make your app德扑圈官方网址home buying experience a little easier.

Rule 1: Consider your total housing payment, not just the mortgage

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property taxes and all housing-related insurance—app德扑圈官方网址homeowner’s insurance and PMI. To find app德扑圈官方网址homeowners insurance, we recommend visiting Policygenius. They’re what we call an insurance aggregator, which means they compile all the best rates from around the online marketplace and present you with the best ones.

As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

Income used for housing: What others say

The traditional model: 35 percent/45 percent of pretax income.

In an article on how the mortgage crash of the late 2000s changed the rules for first-time app德扑圈官方网址home buyers, the New York Times reported:

“If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax, and app德扑圈官方网址home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.”

Let’s remember that even in the post-crisis lending world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and app德扑圈官方网址home insurance payments “conservative.” I’d call it average.

The conservative model: 25 percent of after-tax income!

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-app德扑圈官方网址home income.

“Your mortgage payment should not be more than 25 percent of your take-app德扑圈官方网址home pay and you should get a 15-year or less, fixed-rate mortgage … Now, you can probably qualify for a much larger loan than what 25 percent of your take-app德扑圈官方网址home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars, and education.”

Notice that Ramsey says 25 percent of your take-app德扑圈官方网址home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world where most buyers take 30-year mortgages. This is what I’d call conservative.

Our take: Somewhere in between

Not everybody is as debt-averse as Ramsey—and following his one-size-fits-all advice has risks. You just have to remember: The more you spend on your app德扑圈官方网址home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

Related: Try our app德扑圈官方网址home affordability calculator

Another reader put it this way:

  • Your mortgage payment should be equal to one week’s paycheck.
  • Your mortgage payment plus all other debt should be no greater than two weeks’ paycheck.

That’s on the conservative side, too. One week’s paycheck is about 23 percent of your monthly (after-tax) income.

If I had to set a rule, it would be this:

  • Aim to keep your mortgage payment at or below 28 percent of your pretax monthly income.
  • Aim to keep your total debt payments at or below 40 percent of your pretax monthly income. Note that 40 percent should be a maximum. We recommend an even better goal is to keep total debt to a third, or 33 percent.

As some commenters have pointed out, while it may be possible to buy a decent app德扑圈官方网址home in a small midwestern town for $100,000 (and well within these ratios), workers in New York or San Francisco will need to spend five times that amount just to get a hole in the wall. Yes, people tend to earn more in these high-cost-of-living areas, but not that much more. Does it mean they shouldn’t buy a app德扑圈官方网址home? Not necessarily. They’ll simply have to make trade-offs to buy in those areas.

Just remember that when you obtain mortgage pre-approval, lenders will likely approve you for a loan amount with payments of up to 30 or 35 percent of your pretax income. That may tempt you to take on more app德扑圈官方网址home than you should. Don’t just assume that just because the bank approved it, you can afford it. They are two very different things.

Finding the Right Lender

One thing to consider as you shop for a lender is that every dollar counts. You’re committing to a monthly mortgage payment based on the rate you choose at the very start. Even a small savings on your interest rate will add up over the years you’re in your house. There are a couple of lenders that can help you save.

Reali Loans connects you with an advisor who specializes in the area where your new app德扑圈官方网址home will be located. That agent can help you get the best interest rate, as well as work with you while you fill out your application, search for a app德扑圈官方网址home, and close your loan. To get started, you provide some basic information and get a quick, no-obligation rate quote.

In the market for a house sometime soon? Use our resources to target your search—and know well in advance what you can afford:

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About the

Total Articles: 352
David Weliver is the founder of Money Under 30. He's a cited ity on personal finance and the unique money issues he faced during his first two decades as an adult. He lives in Maine with his wife and two children.

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43 comments
Curtis V says:

Not sure what the “risk” is with Ramsey’s model. I’d say there’s not really a risk with a higher mortgage payment, since you’re aware of what your payment is going to be before you close. Having less disposable income is not really a risk to me, but a price to pay for gaining equity in your house at a much faster rate. I do think the 25% after-tax rule is a bit conservative and unrealistic for many people.

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Brandon says:

Dave Ramsey’s advice is great if you live in less expensive areas of the US…it is not viable (nor desirable) for coastal areas. It is easy for him to say get a 15 year mortgage for your 600k loan but in reality people are going to get a 30-year mortgage to be comfortable and in order to ensure their family/kids have access to safe areas/schools, etc…I have only lived in California and South Florida so I have always found his advice less than helpful. He seems like a nice guy though.

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Curtis V says:

Pretty much all of Ramsey’s advice is really tailored towards people who have gotten into deep debt troubles in the first place. That’s why his advice is so risk-averse (all of your investments in mutual funds, absolutely no credit cards).

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PepperPot says:

Question. What benefit is there to using “pre-tax” wages instead of “post-tax” wages to project what you should pay for a mortgage? The post-tax dollars is the money you are actually taking app德扑圈官方网址home and it makes a major difference in my projections. Are you just doing this because you are demonstrating the formula a lender would use?

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JannaM says:

I just don’t see how this could ever work in New York, specifically the Long Island area. In order to not live in a slum and have decent (not great, just decent) schools, you have to spend $350k minimum for a tiny 3-bedroom house. Add in the $10,000 property taxes and you’re just screwed.

I’m a single parent making $90k. I have $50k in cash. There is literally no hope of me buying a house whose mortgage + taxes + insurance = 25% of my take app德扑圈官方网址home income (and that’s supposed to be for a 15-year mortgage?!?! Does that work in the middle of Kentucky, because it sure doesn’t work here).

The problem is that I have to leave my apartment. So I will either have to put up close to $10k to get into a new apartment (with just 2 bedrooms, again in just-decent school district) between first, last, security and likely a real estate fee.

How do people do it? I’m just so frustrated.

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JLK says:

Your city and state is the problem. Most of America is NOT like this. Check out who runs your city/state, the crazy high taxes, etc. There is a massive exodus happening in areas like yours. Just google the stats and you’ll see. And no, you do not have to live in a remote town out in the country somewhere to live reasonably lol. Good luck!

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Jen says:

We are sitting in the same conundrum. The houses we are looking at are within 25-35% take app德扑圈官方网址home. While we can comfortably sit at the very highest payment at about $2265 it still scares me! It’s such a big commitment. You can find cheap houses everywhere, but you had better be ready to make some huge sacrifices! One we are absolutely not willing to compromise is where our daughter would go to school. Surprise surprise that absolute best schools come with the highest cost of living. We don’t need a huge house for just the three of us. Unfortunately in the school district you’ll get a $215,000 piece of falling down crap, or you have to go $350,000 (Which is a mid priced app德扑圈官方网址home in that area) which is still huge! It seems like there isn’t much in between. We did look at building, but there are no lots available in the school district we want. I’m just having a hard time choking down a $2,265 mortgage (which includes taxes, HOA, and insurance). We need to make the decision in the next 6 months when our lease is up because I am tired of living in a crappy rent house and paying $1,650 a month for it, when it could be going to a mortgage. I’m not sure what to do.

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Steph says:

We are in a similar situation. I like basing my math off NET income because that’s the money I can easily track using Mint. Our income fluctuates enough that gross doesn’t mean much. I am just taking a spreadsheet with our net income each month and subtracted our budgeted non-housing expenses to figure out how much room I have. Our rent for a 2 bedroom is 1800. We’re looking at app德扑圈官方网址homes that would be 2500 or less per month. I need to be absolutely sure 2500 would be easy to send directly to the bank every month. It’s a scary number, but we’ve been underspending to live as a family of 5 in this rental. I’ve been using the difference to payoff debt and save for a house. So, ultimately, I think a hefty emergency fund to cover job loss is the only way any higher payment will feel OK.

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Frank says:

Hi Jen (and Steph),

Since it’s been over 3 years now, how did you handle these decisions, and how are things looking now? Has the unpredictability of the mortgage journey proven to be as impactful for you so far? We’re currently reviewing our options (looking at mortgage of ~34% of gross income, but no other debt; no children, and single income, as wife is part-timing unstably while a student). This worries me: while our household income will likely increase, so will expenses. But I also worry that at 43, and making close to $90k, forking money into another person’s equity through rent is increasingly harder to justify. Thanks!

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Cobo Rodregas says:

Are these rules just the mortgage or for (mortgage + property tax + insurance + utilities). The monthly payment to my mortgage company for me at least is only ~70% mortgage. ~24 % is property tax and the remaining 6 % is insurance (I escrow both taxes and insurance).

If you add in utilities the mortgage portion is only 60% of what i pay for app德扑圈官方网址home ownership.

So I could easily claim that my mortgage is less than 25% of my take app德扑圈官方网址home pay. But the total cost of ownership is much higher.

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bill says:

mortgage + tax + insurance = less than 25% of gross income recommended

add in every other recurring monthly debt….including all utilities = less than 33% of gross income recommended

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Jacqualine says:

Thanks for sharing your thoughts about top remortgages.
Regards

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FrustratedinDC says:

As the article notes, it’s fine to be conservative if you live in most areas. I live in the Washington, DC metro area, where conservatism isn’t in the cards–unless you happen to be wealthy. If you want decent schools, you need to live in a suburb like those in Montgomery County, MD. The cheapest house in Montgomery County, MD that would be suitable for a 4-person family–3 bedrooms, 1200 square feet, still pretty far from the city and quite a miserable looking little hole–is on the market for $379,000. Assuming they make a 20 percent down-payment, the family that buys this house would have to take out a $300,000 mortgage. That means monthly payments would stack up to about $1870/month, even at today’s very low interest rates. To stay at 25% of pre-tax income, you’d have to earn about $90K a year. If we use net income as our measure, then the family would have to earn substantially more than that.

So in areas like DC, New York City and San Francisco, fiscal conservatism is a privilege of the wealthy.

As for moving–that wouid be an attractive option, if only jobs were plentiful elsewhere.

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Rich Uncle EL says:

I would have to agree with the 33% rule as a max. I would also recommend that first time app德扑圈官方网址home buyers set aside a 3 month mortgage cushion besides the original emergency fund they had before buying the app德扑圈官方网址home. It will provide peace of mind with all the unexpected things app德扑圈官方网址home owners will face.

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AG says:

This is all very interesting to me. I think it comes down to what makes us comfortable from an individual standpoint. My wife to be and I always think that if you grew up with debt, credit cards, student loans etc it is easier to take larger loans out, or at least you feel more comfortable with it, not sure how true that may actually be. The two of us have been very fortunate and have not had any debt or loans until we bought cars and recently purchased a house. Running through the numbers (including taxes and insurance) our yearly mortgage comes to 10% of pre tax dollars and 16% of take app德扑圈官方网址home. I would say this is conservative but we simply didn’t feel comfortable with a mortgage that was much more than what we ended up with.

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David says:

Yes, most people seem to buy way to big of a house that they can’t afford. I see it all the time where people buy this expensive house that costs them 40% or so of there income. Than they buy this SUV brand new that they had to have for there family for another $35,000. Than next thing they know they loose there job because there is some one out there that does it better than them. Well what do you know this person had no savings what so ever to fall back on. I say If you want a big house for more than 25-30% of your income put more cash down on it. It’s not hard people to save. Im military make $45,000 a year married, my wife does not work. We have 2 cars paid off live in a 3 bedroom house we rent. Right now $900-1100 a month for savings. Live with in your means with app德扑圈官方网址homes, cars and all purchases. I feel all these people saying 25% rule is crazy are the ones that will be in struggle later on. Like I said why not just put more money down on the app德扑圈官方网址home. I was thinking of buying, but I move every 3 years or so. So for me maybe not the best option.

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Jenn says:

The military if active Duty offers a lot of help. I know this because my cousin and her husband openly tell us how much the government give them for housing credits ect. Saving money is easier when you have those credits it helps subsidize rent. So to get on a soap box about people living outside of their means is not the best coming from your background since your occupation comes with some benefits.

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Mary Anne @ BillGuard says:

I think the bigger question isn’t necessarily “how much of a mortgage can you afford” but rather, “how much do you really need”? You might be able to afford to spend 20-30 percent of your income on your mortgage, but perhaps (based on the size of your family) you only really need a scaled-down app德扑圈官方网址home that costs 10 percent of your income. There’s no reason to buy “more” app德扑圈官方网址home than you need, even if you can afford to do so.

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carl says:

just checked to see what % my mortgage is of my take app德扑圈官方网址home pay. 14.1% that includes insurance and taxes. Its a nice house, I make decent money. Neither of which is over the top. Buying after the market crashed makes a huge difference.

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Shane says:

My mortgage (MTI) is 20% of my take app德扑圈官方网址home pay, and that’s after me contributing 6% to my 401k. It’s what has allowed me to be on track to pay off $40k in student loans in one year. In fact, the mortgage is such a small factor for me, that I could easily pay it off before I turn 30. I highly recommend the 25% take app德扑圈官方网址home pay rule. It’s definitely feasible if you don’t get suckered into the bigger, nicer, better location gimmick.

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Katrina Reuben says:

Should we consider the app德扑圈官方网址home owners insurance cost with the 25% take-app德扑圈官方网址home pay threshold you stated we should be meeting before considering refinancing?

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Luke Duke says:

I am currently struggling with this problem as well. My wife and I have been married for 3 years and have YET to get into a app德扑圈官方网址home due to constant apprehension on what we should/could spend and unstable employment. The strain on our relationship comes from NOT having a app德扑圈官方网址home and having to rent my father’s basement for 3 years longer than we intended. We are now at a point where we are financially ready to buy a app德扑圈官方网址home but the 25% of net income rule is virtually impossible in the Chicagoland area. Without having to buy a dump that we will have to sink thousands into anyway, I figure we can handle a mortgage that is roughly 30% of our GROSS income. We have about 10-12% down payment and no debt whatsoever. I’ve been over the math hundreds of times, am I crazy for thinking this is possible or am I making a smart investment?

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David says:

Usually minimum to put down is 20%. Why not put at least 20% or heck save a little more and put down 25-30%. This would lower the 30% of your gross income. It’s not impossible it’s just your putting down a very small percentage of money. Now I know you think wow that 2 or 3 times as much as we have saved. Tighten up your budget and save more. If it takes another year or 2 years so you can have more money in your budget I don’t see what the problem would be.

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Ali says:

Hi Luke,

Went through the same struggle in MD-DC area. I found it to be beneficial to buy a fixer-upper. You can do the fixing at your pace and to your liking. You will not be tied to a higher mortgage payment because you will not be paying interest on the money.

Always keep in mind that on a conventional loan you have the option of buying out PMI if you are making less then 20% down payment. Lender tend not to tell you this for whatever reason.

In my case, 12% down payment on a conventional loan meant that I would have to pay approximately $137.xx every month for 7 years to meet 20% down and to make PMI disappear. However, by choosing to buy out PMI upfront I had to pay less than 5K and have no PMI.

If I had not bought out PMI i would have paid 137 dollar for 7 years which translates into $11,508.Yes, time value of the money makes a small difference, but you can safe additional down payment to do the fixing of a fixer upper.

This is my first posting online ever regarding mortgage – as a first time app德扑圈官方网址home buyer, Buying a house sucks because it is extremely stressful!!

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Aspirin says:

Well, I’ll stir the pot a little bit too. I think it’s kind of funny that pretty much all the comments on here are how to justify more debt and be less conservative with our spending, yet we’re in the middle of an economic crisis brought on largely because too many people wanted that house with the pool next to the golf course and didn’t have the means. Their yearnings exceeded their earnings, but they just had to have it and here we are. I’ll stick to the conservative side of finances. 25% is a big plenty for me, but my wife and I don’t need status symbols to be happy, so I guess we’re lucky there. Jobs and earnings are fragile, undulating things, but debt is always there and doesn’t care if you have a bad month! I think a lot of headaches and even divorces could be avoided by being conservative and putting a little extra in the bank.

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2ndapp德扑圈官方网址home says:

My wife and I are looking into what will be our second time buying a app德扑圈官方网址home. We sold our first app德扑圈官方网址home almost 2 years ago in 2008 because we relocated for my career. We didn’t make any money on the app德扑圈官方网址home sale but we didn’t lose any money either, so all-in-all I call that a huge positive for us. We’ve been sitting on cash for 2 years with absolutely zero debt.

Now however, we are looking to purchasing again and the dilemma I’m finding is that we could spend about 34% (income before tax) which would include PMI, Ins, HOA … every but basic utilities -Which we’d pay no matter where we live- on an excellent app德扑圈官方网址home on a nice golf course, pool, city view, etc.

-Or- we could pay significantly less than the 34% (as explained above) on more of a very basic app德扑圈官方网址home. I’m concerned that a very basic app德扑圈官方网址home (getting us closer to 25% or less) would be much more difficult to sell in future years because it seems so much less desirable. Granted it would be much cheaper and probably free up a lot of cash flow.

It just seems like the 34% app德扑圈官方网址home is a real gem whereas the basic app德扑圈官方网址homes would be much more inexpensive but … well it just seems as though the house with the pool on the course is tremendously marketable whereas any of the basic app德扑圈官方网址homes would look like just another app德扑圈官方网址home on the market if I want to sell in a few years.

Any thoughts?

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rvaughnp says:

For all of those that are arguing about purchasing a app德扑圈官方网址home in the 35% pretax area… I would watch the news a little before that purchase; especialy here in the next few months when the re-reforclosures start coming in. Most of all the forclosures where purchased under those guidelines. Nothing like seeing your app德扑圈官方网址homes market price drop after your recent purchase, to around 30%-50% from what it was purchased for one year to five years after your purchase.

The problem is that laws have been passed that allow city and state governements to increase the tax burden on our app德扑圈官方网址homes instead of letting the market work itself out.

My 2800 sq ft app德扑圈官方网址home in Midland,TX that is taxed at 185,000 here(which I purchased at 170,000 (07′) just three yeras ago) would cost 145,000 in Arlington,TX and probably 350,000 or more in LA,CA. We don’t get to make the market the government does by continually increasing the tax rates and appraisals.

Sorry to get off subject. But it needed to be said… a house that is appraised today at 300,000 in five year will be 400-450,000 in 7 years. Will the adjusted mortgage payment (with new tax payment increase added in) still be affordable?

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Michelle R says:

Unfortunately we bought at the top of the market in Pennsylvania, our 2600 sq ft app德扑圈官方网址home was 512,000 now worth 475,000.
I just figured out that we are at 38%, due to my husbands job change/cut in pay. But after discussing (should we sale?) we realized we lost a good amount of equity already and decided to calculate 10% as an investment. (15% is standard percentage for investing) and the other 5% into 401 until I return to work.

This is an area we plan to be here for the long term, watch our kids grow old here and sale it when we retire. Also, when I go back to work we plan to pay the mortgage off in less than 15 years.

I’m know I’ve rambled but the point is the %’s are just guidelines and you have to do what works for you and meets your long term goals.

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RQ says:

agreed Michelle!

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Pamsthoughts says:

I felt this way and still struggle with the same dilemma. As a former Realtor and a app德扑圈官方网址home seller
dont be fooled by its a great investment for resale. My husband and I fell into the same scenario and thought the app德扑圈官方网址home we currently have would be better for resale and statistics in the future, in a similiar setting as to what you described.
Boy were we wrong, we even bought at the “low” price point in a declining market. Our app德扑圈官方网址home after one year is worth 60,000 less currently than what we paid a year ago.
We currently have it for sale due to a job transfer for my husband’s job and even with relocation assist with his company we are having to take a substantial loss.
I learned my lesson and the next app德扑圈官方网址home we buy will be smaller and in a neighborhood that most people can afford to buy in. I will not make the same mistake twice. The cash flow is much more important than living in a upscale neighborhood to us now.
Anyway good luck with what you decide but please dont base your decision based on resale potential, nothing is guaranteed in this market .

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zebov says:

There is a huge difference between the two methods. Assuming you don’t include insurance and taxes in the 35% of pre-tax scenario, if you make $100,000/yr married, you’re looking at a $486,000 app德扑圈官方网址home. For 25% of post-tax at $100,000/yr married including insurance and taxes (0.5% and 0.75% annual based on app德扑圈官方网址home price, respectively), you’re looking at a $182,000 app德扑圈官方网址home. THAT IS A HUGE DIFFERENCE. A $300,000 difference! Note that all these calculations were done based on 6% interest and don’t include down payment information.

Personally, I’d like to stick to Dave’s rule. I know there are some markets where this may not be possible, but in the midwest, even with a $20k/yr job, you could get a house for this much. Yes it would be a very small house probably not in your first choice neighborhood. Yes, you’d have to shop around a lot to find it. But yes, it is doable. I don’t buy the “It’s not possible” line. We don’t NEED huge houses with 1+ rooms per person. What we NEED is a place that will protect us from the elements where we can lay our heads, cook food, and stay healthy (hygiene). There are many MANY cultures around the world that do just fine with much less than what Dave talks about. I’m not saying we should turn into a third-world country, but I certainly think we as Americans have gotten way out of control in what we spend on shelter… as if a larger house will somehow make us happier and get rid of our problems.

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Jeff says:

“but in the Midwest, even with a $20k/yr job, you could get a house for this much.”

I hope you’re exaggerating. I live in St. Louis, MO and 25% of your post tax monthly income on a 20k per year job would be about 360 bucks. That wouldn’t get you a studio apartment in the ghetto much less a house. Unless you’re talking about the poorest poedunk rural area in the country, $360 a month will not cover a mortage payment, taxes, and app德扑圈官方网址homeowners insurance and PMI. Unless maybe you’re planning on buying an “outhouse”.

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tom isenbach says:

Agreed. I can’t tell you how ridiculous this 20-25% of your post tax figure is. If real estate prices were more in line with what they were in the 1980’s this MIGHT be possible. People that make $60,000(for example) per year in St. Louis do not want to live in complete filth in an undesirable area. By following this ridiculous rule of thumb, that is what you would get if you made around that amount per year. I’d say if you do not have a lot of debt, 20-25% of your PRETAX income is just fine. You are not going to have a financial crisis and you will still be able to take your pick from many desirable neighborhoods.

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Meghan says:

I’m not sure the 25% of post-tax income is quite so ridiculous. My husband and I live in Charlotte NC (not cheap by any means but not extremely pricey – a good sample) and together, we make $100,000 annually. After taxes, our net income is right at $5500/month.

We live in a very desirable suburb of Charlotte (15 minutes outside the City Limits) and paid $190,000 for our house. We put a little over 20% down ($40,000) and took out a 20 year mortgage. Our mortgage payment is $880/month. Our taxes & insurance are $210/month for a total of $1090/month. That’s less than 20% of our net bring app德扑圈官方网址home. Buying a app德扑圈官方网址home at 35% of our pre-tax income would put us in a $2700/month house – no thank you. With our bring app德扑圈官方网址home, after paying our mortgage, we would be left with $2800/month to pay other bills, save money, buy a car when we get ready to, go on vacation, etc. That’s not comfortable.

35% of our pre-tax monthly income is actually 50% of our bring app德扑圈官方网址home after taxes, and quite simply, isn’t doable for us. It doesn’t seem like it’d be doable for any typical, successful couple who isn’t making at least $250,000+ annually.

It’s easily doable in some parts of the country – maybe not in other areas, but as a whole, I think staying at or around 25% of net income is doable. I certainly feel that 35% of your pre-tax income truly is way too much money to put towards your mortgage unless you never ever plan to need to buy a car, send your kids to private school, pay for college or buy anything else until your mortgage is paid off.

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cobo Rodreges says:

In many decent small towns you can easily buy an OK house in an OK neighborhood for ~$45K or less. Depends on what your priorities are.

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elisssabeth says:

Au contraire…A larger house DOES make us happier. Last year we moved our 4 person, 2 dog family FROM an 1800 sq foot bungalow in a densely-packed blue collar neighborhood with narrow, unwalkable streets and no sidewalks, TO a 2900 sq ft house with quiet neighbors, plenty of space between the houses, wide enough streets to safely walk with our dogs and kids…and the lowering of everyone’s stress level is palpable. We are no longer telling the dogs to get out of the way ALL DAY LONG, or trying to do laundry in a closet in the one hallway where everyone has to walk to get anywhere. Blood pressures are definitely down. That’s worth $ to me. LOTS of $.

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Terry says:

Dave Ramsey’s system potentially can make some people worse off in the long run.

For example, if someone who “shouldn’t” buy a app德扑圈官方网址home (according to Dave’s Rules) never buys a app德扑圈官方网址home, in the long run they could be worse off due to (1) never building any app德扑圈官方网址home equity, and (2) paying ever-rising rents, thus hindering their ability to save and invest.

Dave says that renting often makes sense in the short term, but isn’t a good long-term housing strategy. But Dave’s Rules set up many people to fail financially in the long run.

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Travis says:

Agreed. Dave’s scenario could work if someone made a quarter million dollars a year, but how many American’s make that kind of money? You’ll pay just as much in rent these days as you will on a mortgage so what is the point in doing so when a mortgage at least retains some value? According to Dave a person making just over $100,000 can only afford $180,000 app德扑圈官方网址home. Depending on the area, this could buy you a decent three bedroom app德扑圈官方网址home or a terrible apartment in the slums. Either way you would think that the top 15% could afford something a little nicer. For me, someone who only makes $50,000, I would only be able to afford a $100,000 app德扑圈官方网址home. Unless the house is foreclosed in a high crime neighborhood I will not find a house at that price, believe me I’ve looked. Rent is a waste; I can’t find an apartment under $800 dollars.

What it really comes down to is preference and responsibility. Some would rather prefer living in a nice neighborhood with good schools for their children while sacrificing other things like new cars, pricey vacations, and eating out. Others would rather have the new cars, pricey vacations, and eat out every other night while living in a cardboard box. It doesn’t really matter which one you choose as long as your happy.

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Bill says:

I have a mortgage payment that is 22% of my pre-tax income including all taxes and insurance and I’m comfortable with that. I live in a respectable house in a good neighborhood. 35% seems high to me if you have a car payment and student loans especially. Also, I could barely rent in my area with 25% of my take-app德扑圈官方网址home pay like Ramsey says. I think a better guideline would be 25% of pre-tax income not 35%.

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David Weliver says:

Touché, Jason. The market you’re trying to buy into will dictate how much you have to spend, and I wouldn’t tell somebody to postpone buying forever to wait until they can meet such a stringent budget.

I can, however, imagine Dave Ramsey’s rebuttal: “Then move somewhere else!” Obviously that’s not the answer.

His recommendation of 25 percent of take-app德扑圈官方网址home income is extremely conservative and, for most, probably the floor of what they would consider spending. My hope was simply to point out that going from his advice to lenders’ criteria—35 percent of gross income—is a big, big leap!!

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Jason says:

I’m gonna stir the pot here a bit: If you’re conservative and shoot for 25% of your income for mortgage payments and you live in or near a major, expensive metropolitan area, you’re never going to buy anything. And waiting for forever may be more damaging in other ways down the road, especially when real estate prices are going to be somewhat depressed for the next couple years.

There’s some risk involved in almost any financial decision and there’s obviously risk involved in app德扑圈官方网址home ownership. But similarly, sitting on the sidelines for forever because you need to wait until you’re making two hundred grand to be able to afford a starter condo just isn’t realistic. In and around cities like San Francisco, Boston, or New York, you pretty much need to stretch to the very top of your range to afford much of anything unless you make well, well into six figures.

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John says:

My recommendation is that one should stay at or below 31% of their monthly take-app德扑圈官方网址home (net) pay for all of the following combined expenses: mortgage, real estate taxes, app德扑圈官方网址homeowner’s insurance, car payment, and car insurance. By doing this, and eating out very infrequently (including packing lunches for work and/or school), one can invest plenty into their retirement accounts and save for necessary app德扑圈官方网址home repairs/improvements, etc. In addition to all of the above, one should have at least 7-12 months of net pay in a savings account for emergencies.

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Stu says:

Like Jason said…even at 31% of take-app德扑圈官方网址home…that’s insanely low in anyplace like San Francisco, New York, Los Angeles, etc, etc. You MIGHT be able to get a real junky starter-condo for that…which would be a horrible decision as well.

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