What % of your net income should go to your mortgage pmt?

[newyearae]

What is your belief on this? What do you think the best financial advice is, given the current state of things? Dave Ramsey (like him or not) always says 25% of net pay. Many financial websites say 28% of gross pay. I know mortgage companies (in the past) would always approve you for much more.

Planning to move in 2023...trying to set some financially smart goals. TIA!

[waverly]

Ours is 20% ish of net pay, so I guess 15% ish of gross pay. We live near a HCOL city, but the suburb where we are has MCOL housing. We were probably approved for almost double of what we ended up buying. But the extra room in the budget allowed for 2 in daycare, more flexibility for cars and for DH to start his side business.

[mpm]

It REALLY depends on what your income and other expenses are. I wouldn’t target a %.

[bee20]

I'm currently at 33% of net pay (12% of gross), that's very comfortable but I don't have childcare and my net pay is low because I save very aggressively for retirement, so if my expenses increased I have a buffer. When I bought this house I was closer to 50% of net pay (25% of gross), which was a stretch but I was early in my career and knew my salary would increase in a few years. Now that I'm later in my career and my pay has leveled off I think I'd still aim for 25-33% of net.

I agree strongly that it matters more about your actual budget than any guideline, if you are higher income you can go higher since more of your spending is discretionary. 

[wildrice]

I've always heard the rule of thumb is 30% of your net income should go toward living expenses, which I believe includes housing payment/housing taxes/utilities. This really will end up varying a lot depending on your income and where you live, though. In some places 30% is impossible on a lot of salaries because cost of living is too high. And if you are pulling in 15k a month there is nothing saying you should spend 5k a month unless you want to.

For me I actually prefer to aim around 20-25% because I like the flexibility that allows. That's about where we are right now and we probably won't upgrade once we earn more money so eventually that percentage will go down. Likewise, we've paid more like 40% when we first moved here and our income was a lot lower.

[krystee]

I am at 25% of net and wouldn’t feel much comfortable higher because we have a daycare payment, a student loan, car payments, etc. If we did not have a daycare and knew we wouldn’t in the future, I would be comfortable with more.

[sdlaura]

Dec 28, 2022 15:11:13 GMT -5 mpm said:

It REALLY depends on what your income and other expenses are. I wouldn’t target a %.

ITA with this. And would say as little as possible? We would be totally house-poor if our mortgage payment was 25% of our net. Instead, it's like 5-10%, and that has totally changed our lives in terms of the financial flexibility it gave us. We were able to have more kids, travel more, pay for childcare so that we can take a breath sometimes. I realize we got super lucky in terms of the environment we bought in, but most families of 6 would have moved to a bigger/fancier house as their income grew, and I'm so glad that we didn't. I'm not interested in being house-poor.

I think 25-30% would be a lot more reasonable if we didn't have kids.

[redpenmama]

I think that 25-30% range might be a decent rule of thumb, but it varies wildly with what your other expenses are.

I think the key is budgeting overall and seeing what you can realistically afford every month when considering other expenses and saving goals. When we were planning to build our house, we incorporated our "goal" mortgage payment into the budget (our rent was lower, so we'd drop the difference into a savings account at the start of the month) just to make sure we were comfortable with the added expense. It made the transition to higher housing expenses easier when we did take on the mortgage.

[plutosmoon]

My rent is around 40% of my take home, when I buy it will be similar or slightly higher, I think my mortgage approval is for around 30% of gross. It's not really an option to go lower unless I get a giant raise or house prices drop.

My first house was in 30% of net range when we bought, but after exh lost his job, it was over 50%, I don't recommend that. My last house was just under 40% of my take home, it was fine, especially once exh moved out.

I run a tight budget, I save, my income is not high, it's well below 100k. My only debt is a small car payment and we are only a 2 person household, so a higher housing payment works for me. It probably wouldn't work for those with more kids, more debt, or different expenses.

[heygrey]

Ours is about 25% of our take home and 18% of our gross. It feels comfortable for us because we don't have any other large monthly payments, and keep our general expenses low. We were approved for $125,000 more than we spent on our house. I cannot imagine feeling comfortable with a mortgage at the price point.

We worked backward by deciding what would feel comfortable as a monthly payment and what seemed manageable for ~6 months if either of us were to lose our jobs. That payment dictated what price point we should be looking at.

The percentage advice seems irrelevant these days. How much money do you make? What is the average house price in your area? What are your other major expenses? These are the things you need to consider.

[ssmjlm]

As the breadwinner I wanted to be able to cover the mortgage on my salary alone, which I can do if we had to.

Our mortgage is 27% of our take home (I think). What goes into the checking account is after a ton of deductions and allotments to various accounts.

We’re in a MCOL area. We refinanced to a 20 year mortgage in 2020.

[waverly]

I’m not the breadwinner and I can cover the mortgage. It’s worked out really well because DH tends to transition jobs more frequently and sometimes he has gaps so it’s nice to be able to be covered.

[loira]

Mine is about 41% of my net pay (I'm the main breadwinner but H does work part time and this doesn't include his income). Rent would be about the same where I live. It was fine until all the prices started going up. We have 1 kid and 1 dog but live in what is now the most expensive city in my province - apparently we've surpassed Vancouver in cost. So... Basically we aren't doing anything big this year. Also gonna eat a lot of canned soup.

We bought our condo in early 2020 and figured we'd spend 4-5 years here and then upgrade to a house. But I can't see that happening anytime soon because house prices are so high here and I don't have a cool million to spend on half a duplex.

[midwestmama]

Dec 28, 2022 17:01:45 GMT -5 heygrey said:

We worked backward by deciding what would feel comfortable as a monthly payment and what seemed manageable for ~6 months if either of us were to lose our jobs. That payment dictated what price point we should be looking at.

The percentage advice seems irrelevant these days. How much money do you make? What is the average house price in your area? What are your other major expenses? These are the things you need to consider.

I agree with this.  Excellent things to consider.

For me and DH, our goal has been that the mortgage could be paid by one of my paychecks. (We are paid biweekly, or 26x per year.) DH has always made more money, so this rule of thumb has helped us keep the mortgage to a reasonable amount.  We had a similar thought as what heygrey mentioned about being able to manage in the short-term if one of us were to lose our job.

To answer the % question, ours is about 20% of our net pay. When we refinanced a couple years ago to a 15-year mortgage, it was somewhere between 25-30%. I got a promotion in Aug. 2021 that helped bring down the %.

[Velar Fricative]

I don’t have a belief. Ours is 20% of our take-home pay in a VHCOL area. It’s very comfortable for us and I’d rather not up that, but many are comfortable with much more than that depending on incomes and expenses. And with housing as unaffordable as it is these days, people often have very little choice in the matter.

[isabel]

We're at 21% of net pay, but that's after fully maxed 401k. With that said, I feel like it's tough to target a percentage. Our percentage could be way lower if we weren't maxing 401k, but that's obviously a smart financial move, so saying that we are spending 21% of net isn't a great indicator of our financial position. It also doesn't take into account all our other expenses.

I would focus on your actual budget. Look at your take home pay after all the pre-tax expenses and back into a reasonable mortgage payment based on all your other expenses.

[heygrey]

isabel makes a great point. Net pay is vastly different to gross pay for everyone. Gross pay is largely irrelevant, especially in America because so many things are coming out before you get your net pay. Taxes, insurance, retirement, maybe non taxable savings for health expenses or daycare. You're net pay could be quite low, but you don't have to pay for all those big expense things.

My very best advice is to not listen to Dave Ramsey. I grew up in a Christian circle that revered him, H and I were given his books and advised to strictly adhere to his financial philosophies as young newlyweds in 2009. We would be in heaps of trouble now if we had followed that. Seek a variety of sources, evaluate that against your PERSONAL finances. Make a good decision for your family. If you have values about giving, include that in your budget. But please do not see DR as the be all, end all.

[brooke77]

I would be comfortable up to 30%. We don’t have a mortgage, but when we close on our house it will be around 15%. We don’t have daycare costs or student loans anymore, but are behind on retirement. We also plan to make extra payments because we will take out a 30 year mortgage and want to be done paying it off in about half that time.

[lessel]

We’re at PITI of 28% of net and that felt fine with one kid in daycare and one kid in public school. But it is decidedly not fine since we’re now looking at having them both in specialized private school for learning differences. The other things that factor in are higher costs of house maintenance (cleaning service and yard service) given the size of our house and HOA requirements. We’re looking to downsize house cost/size/maintenance in the next year but the market and interest rates are not ideal.

[lolalolalola]

Similar to others, it really depends on your budget - what other expenses you have or expect to have. Any rule of thumb is just a starting point. 

We have doubled up our mortgage payments and are spending 50% of our net pay on the mortgage every month, which is approx 30% of gross pay... This would not be sustainable for a lot of people (or for us when our kids were both in daycare, etc), but for us, it is totally doable. We really want to be mortgage free!

[gardengal]

When we were thinking about buying, we lived our proposed budget. Any difference in housing costs was immediately transferred to savings so we could see if we felt comfortable or not. And, as a bonus, we saved a far amount before moving to offset moving costs & things we needed for our new place

I agree w pp that there’s not a set percentage that works for everyone

[madringal]

Mortgage loan officer here - I say come up with a number that lets you sleep well at night.

For some people, they need to have lots of discretionary cash to sleep well, or have really high child care payments, or are self employed/100% commission so they prefer a much lower % of their take home pay go to housing. DINKS tend to be willing to spend more. Some people put a priority on paying it off ASAP, so they will go shorter term. Some want to be able to breathe - so they go longer term even if they can afford less.

All of these things are so dependent on lifestyle - choose what helps you sleep best at night.

[aspentosh]

We always operated under "worst case scenario" until I quit to stay home. I made peanuts compared to H, so we never went super high. But he's also very marketable, so even when he lost his job last year, he was able to find one easily (though not necessarily quickly, THANKS COVID).

Anyway. We are around 15% of net pay before our overpayment each month. We could go much higher because we have no other debt, no daycare expenses, and live frugally except for travel. There was a point when we were younger and we were both working that we were closer to 30-35% and I didn't like how tight that felt, but honestly that was because we had higher expenses.

All that to say, as stated above, if you feel comfortable on paper, try it in reality before your move. Then see how that feels on an ongoing basis.

[atarianna]

I distinctly remember applying for our first mortgage when our combined income was like $40k net, and being approved for over $300k. It was INSANE. I would never have been comfortable going that high.

Now, if I were you, I would say to aim to have a total PITI (principal, interest, insurance and property tax plus any PMI etc) around 20% of gross or less. If you’re moving to a high COL it would skew my opinion but that’s what I would aim for personally.

[niq]

We go by the Millionaire Next Door rule, which is "never take out a mortgage for more than 2x your income". In HCOL areas and during the low interest rate times, you could stretch to 3.5 or maybe 4, but today I wouldn't go beyond 3 even in like NYC/SF.

I think this works out to the 28% rule. Banks will lend you way more than that though, especially married 2-earner households.

[jewel]

I don’t think that the percentage advice is great - there are too many factors.

25-30% works for many people, but there’s a huge range in affordability or comfortability, as well as what the market allows. If your income is higher, paying 40% could still leave you with plenty of extra spending money. If your income is lower and/or you have a lot of other monthly obligations, then 25% might be too tight. I would work a total monthly $ amount into your budget and try to live on that between now and when you buy, and calculate a budget price that way.

In some markets, any percentage advice is just irrelevant. I live in a fairly reasonably priced area of California. The median household income in my city is just over $100k. The lowest price housing for sale in the same city is currently $314k for a 1/1. Most people currently buying are either moving a lot of equity from a previous purchase or taking out a mortgage at least 4-5x their annual income. The rental market isn’t any better. People are just spending a huge portion of their income on housing unless they were lucky to purchase something 5+ years ago.

FWIW - we transferred a lot of equity so our mortgage amount is relatively low, especially compared to value. We are paying close to 40% on PITI, but have no daycare, only one small car payment, and no other debt. We are also several years in to a 10 year mortgage, so we consciously made that choice to send such a large % to housing, with the goal to be mortgage-free before our oldest kid can drive. This payment amount, at 40%, feels perfectly comfortable. It would be much harder or impossible if we had a significant lower income, daycare, student loans, etc.