Did you follow the 25% monthly take home income/mortgage rule?

[elizamom]

Why or why not?

We are looking to buy a home and DH is more aggressive financially than I am. I want to be around 20% and DH says it's ok to go above 25%. Just curious what everyone else here is doing.

[dogmom]

Why or why not?

We are looking to buy a home and DH is more aggressive financially than I am. I want to be around 20% and DH says it's ok to go above 25%. Just curious what everyone else here is doing.

Umm...no because I wouldn't have a house.

[elizamom]

Lol. :) we have been in that boat too when we were in a very hcol area. But we were renting.

Anyone have any links to old threads similar to this?

[KrisM]

No. We decided we didn't need that much house. We were about 20% when we bought and 12% last year when we paid it off. My first house was at about 30% and it seemed like too much to me. I just had a harder time saving all I wanted to save.

[Indianamom2]

We kept it well below the recommended levels and I am very thankful now that we did. Our house value has been pretty stable over the 10 years we've lived here and we live in a very LCOL area, but about 2 years ago, DH took a job that cut his pay by at least a third. It has made things much tighter financially, but our lives are better as a result of the job change. However we would probably have had to move if we had maxed ourselves out on a mortgage payment. I think huge purchases like housing are usually best done conservatively.

[icunurse]

We are probably around 20% (without property taxes) and 25% with. We didn't plan it that way. We bought early for our area (so a good price) and we knew we wanted to be able to survive on one paycheck in case anything happened (so we limited what we would even consider purchasing). For most of my friends/co-workers, our home is "modest" and they pay a lot more for what they want. But to us, it isn't perfect, but it is plenty.

I don't think paying a bit more percentage wise is necessarily bad, as long as all things are considered (future market value, needs vs ability to pay, implications of mortgage rates and length). We are pretty cautious with money and wanted to also pay off our mortgage in 15 years. We could have had a lot more, but we chose to keep it safe and simple, which isn't everyone's choice, but it works for us.

[basil]

I just calculated us as 17% and we have a 15 year loan. I could have easily spent more and DH wanted to spend less. He desperately wants a paid off house ASAP. I will be satisfied to get there sometime before DS goes to college.

ETA payment includes property tax as well

[Philly Mom]

We are around 25% but we have a 15 year mortgage and are paying off extra every month so that we own the house outright in 11-12 years.


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[Mommy_Mea]

We live in a HCOL area, so we didn't follow a certain % rule. We took a look at our income, our expenses, and what we could afford while still achieving our minimum savings goals. Then we stretched our budget to buy a house that we could be happy in for the next 20 years.

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.

[SnuggleBuggles]

We kept it under that. I remember when they pre-approved us, we laughed at the amount they ok'ed (back in 2003). No way would we have felt comfortable spending that much. We live in a LCOL place for a reason. :)

[*myfoursons]

That would scare me. We're at about 10% and obviously could have afforded way more house, but we are very conservative financially. We like having lots of wiggle room.

[elizamom]

Ah yes, 15 vs 30 year mortgage makes a huge difference... We would be doing a 30 year with *intentions* of paying it off sooner.

[hillview]

we are below 20% ... we moved house to a lower cost house vs the condo we had in the city. we recently refinanced to a 15 year and are still below 20%. We are lucky to have jobs that pay well.

[ett]

Umm...no because I wouldn't have a house.

Ummm .. same thing here.

[elektra]

We live in a HCOL area, so we didn't follow a certain % rule. We took a look at our income, our expenses, and what we could afford while still achieving our minimum savings goals. Then we stretched our budget to buy a house that we could be happy in for the next 20 years.

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.

Same here, so no.

[belovedgandp]

When we bought (over 15 years ago) we were right at 25%. I remember laughing at the total loan amount we were pre-approved to buy. I said I wanted to be able to eat in the house also. I think it was almost double what we spent.

[Zukini]

We are just at 22% of gross income with taxes and insurance, but we are on one income and no other debt. Planned it that way from the outset of our marriage / home purchases, the goal was for me to stay home for a few years and us still be comfortable. If it was 20% or even 25% based on dual income, it would have been a different story altogether.

[AnnieW625]

We live in a HCOL area, so we didn't follow a certain % rule. We took a look at our income, our expenses, and what we could afford while still achieving our minimum savings goals. Then we stretched our budget to buy a house that we could be happy in for the next 20 years.

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.

Pretty much the same for us too, although when we bought in 2005 the market wasn't showing any signs it was going to slow down so we thought maybe we could eventually sell in 5 yrs., but almost 9 yrs. later we are still here. 20% would have gotten us the same 1200 sq. ft. 3 bed 1 bath house we have now, but in one of two working class areas just to the north of us or a condo in downtown Long Beach worth a lot less than the 425k we would have paid for it in 2005. We make ends meet and I wish we had more in savings but I love our area.

We were told we were fine at 30%, but now I am sure things are stricter and lenders prefer to loan out at 20-25%.

[goldenpig]

Are we talking 25% of gross income, or net income after deducting taxes and retirement savings etc?

[YouAreTheFocus]

Ummm .. same thing here.

Us as well. We are looking to buy and will be ~33% if you are just counting mortgage. If you count prop tax & ins as being part of the mortgage pmt, that would bump us over 40%. And yep, we were approved to go even higher :rolleye0014: And here I thought things had changed since 2004...

[elephantmeg]

it looks like we are under 20% at the moment at a 15 year mortgage. I honestly had no idea! At the beg we had a 30 year with a lower payment because we bought (built a modular) when I was pregnant with DS and knew I would be PT for a few years. I went back FT for a while and am headed back PT (maybe 8 hours less a week!) this summer but it will still be fine! Actually we spend less when I am PT because I cook better and we need less childcare! We will pay off the house before DD hits college!

[klwa]

At the time we bought, we were over that, BUT we were young, had no kids, and were looking at increasing our salaries in the near future. If I had to do it over again, I might have been a little more conservative. However, we'll have it paid off later this year, which is ~12.5 years after purchase, due to our aggressive pay down over the years.

[elizamom]

Are we talking 25% of gross income, or net income after deducting taxes and retirement savings etc?

I was thinking net income when I asked the question...

[janine]

We live in a HCOL area, so we didn't follow a certain % rule. We took a look at our income, our expenses, and what we could afford while still achieving our minimum savings goals. Then we stretched our budget to buy a house that we could be happy in for the next 20 years.

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.

Agree with this. I think with these sorts of threads it relevant to say where you live, or the region. For areas that are HCOL + high property taxes (NJ/NY for example), it is not just about being conservative, or not "feeling comfortable with spending so much", it can just be the nature of the beast of living here and probably why people are starting to move.

As an example we are also conservative, non-splurgers. We have a mortgage rate under 4%, two WOH parents. We put down 30% when we bought and did fix up a bad house in a so-so part of a good town (good schools). We are at 25% of take home pay (NET). This feels fine to us and if we didn't feel comofortable with that, we'd reduce our various non-essential debits (employee stocks, FSA, various extras that come out). It also helps that we have a decent amount of savings in cash. Now if we paid off our mortgage we'd be at 15%. That is ALL taxes and rising every year unlike incomes (at least the past few years).

Again we are in good town, but modest neigbhorhood, 2500sqft house, so our taxes are actually relatively low compared to others. Now someone might say, well size down or move. I don't really want to size down anymore as then we would be very uncomfortable (v.little land), and to move towns means crappy school systems. Property taxes are relative to school standards in my state.

So I think this question might be quite different for another person of similar budgeting styles but who lives in a low property tax/LCOL area.

PS I was assuming net pay and % being mortgage payment + taxes.

[elliput]

"Take home" is generally considered net income.

Our new mortgage comes in just under 25% without escrow (insurance & taxes).

[cookiemonster80]

We are much lower but live in a lcol area and dont really consider my income in our budget calculations- it's for savings and college, etc. we also try to give 10-15% to our church and other missionary works and if the mortgage payment was the 20% we wouldn't be able to do that. So/ just counting DHs income we are about 12%?

[crayonblue]

For areas that are HCOL + high property taxes (NJ/NY for example), it is not just about being conservative, or not "feeling comfortable with spending so much"

Agreed.

[meggie t]

I agree it is very regional, as janine stated. We were in a HCOL with lower prop taxes than current situation. We rented there as we were saving to buy in the neighborhood we lived in, which was super pricey. But we weren't going to sacrifice location just to buy. We loved renting! We also had to take into account that private schools would have been a necessity anywhere in that city. We moved last year to a HCOL+high prop tax state/area. We ended up buying a home we could stay in forever and it is well below the 25% threshold. We are in a fantastic neighborhood with lousy schools, so we will have to do private. But we knew that coming into it. We could have purchased in the next village (a 4 min walk) with what are considered amazing schools and double the prop taxes, but we have different educational goals than are offered in most publics, so we decided to forego that village. All the people in our 'hood do private, or move into the village once the kids hit school age.

If we couldn't afford a 30 year fixed with low interest and below the 25% threshold, we would have rented.

[dogmom]

I was thinking net income when I asked the question...

ROFL. So, if you make 100K a year, your take home is 60K (after taxes, insurance, etc., I find the 60% rule generally applies). That means you can only spend $1000 a months on mortgage which is, what $165,000 mortgage assuming 20% down, 5% interest rate on 30 year loan. That means you need to find a house for $200,000. And that is assuming you are not including real estate taxes.

Here's a average home price (listing and sold) by state: http://www.trulia.com/home_prices/ So even if you are well off, you can rule out over half the states.

Oh, and no state has a median family income of 100K, that's only the top 20% in the US as a whole. There is also a fairly good correlation to housing prices/mean income in states. The states with cheaper housing tend to have man incomes in the 40K range, vs. the 60K range for the higher income states. Or to put it another way, that's 200/month you can spend on a mortgage using the 20% rule, which means around an extra 30K to spend on a house.

[FTMLuc]

We are in the HCOL, high property taxes town, monthly mortgage + property taxes are at about 30%, without ppty tax, mortgage alone is 20%. This morning we closed on a HE loan to redo the kitchen (drawers are falling out), which will bring mortgage + HE loan to 25%. We did not look at %, but realistically looked at bring home, then our expenses of daycare, student loans, etc. and what leftover margin we would be comfortable with.

[khalloc]

Our mortgage, including taxes and home insurance is 20% of DH and my gross income combined. When we bought the house it was probably alot more. That was almost 7 years ago. We have a 20 year mortgage.

[scrooks]

We are at about 19% of DHs monthly take home income (he usually gets a decent bonus but I haven't factored that in since it's not guaranteed and a highly variable amount) with our 30 year mortage. Dh would like to upsize a bit but I am against that.

[rlu]

I live in Silicon Valley.

We rent, and our rent well exceeds 25% of take home. It's insane, but what you do for a good school here.

[sste]

I don't think I agree with this rule, based on my own life experiences -- not intended to upset anyone.

After the sh*te I have seen go down, I would be uncomfortable buying a house I couldn't afford on my own, that is my rule. I recognize that that is not possible in all markets, it is not possible in all families because they choose/want/need a parent to SAH. I understand that tradeoffs must be made and some risks are worth taking. But my personal and overwhelming preference is to be able to maintain my mortgage on my own if that is remotely possible in a market --I have just seen too much divorce, disability, even some deaths.

I feel like the grim reaper here but I do think it is worth highlighting that everyone focuses on how much income and no one seems to attend to whose income it is and in particular the legal system's view of whose income it is if the marriage dissolves . . .

[westwoodmom04]

I don't think I agree with this rule, based on my own life experiences -- not intended to upset anyone.

After the sh*te I have seen go down, I would be uncomfortable buying a house I couldn't afford on my own, that is my rule. I recognize that that is not possible in all markets, it is not possible in all families because they choose/want/need a parent to SAH. I understand that tradeoffs must be made and some risks are worth taking. But my personal and overwhelming preference is to be able to maintain my mortgage on my own if that is remotely possible in a market --I have just seen too much divorce, disability, even some deaths.

I feel like the grim reaper here but I do think it is worth highlighting that everyone focuses on how much income and no one seems to attend to whose income it is and in particular the legal system's view of whose income it is if the marriage dissolves . . .

This is a good point, but even in a family where one parent stays at home, you can mitigate against this risk through life insurance.

[BabyBearsMom]

We are at 14% in our current house. We plan to move next year and our budget is about 25%, but that is straight salary and doesn't include my bonus which is a significant part of my pay

[arivecchi]

I believe we're below 10% of our net income (based on last year's income but DH's income fluctuates a lot) in a high COL area and that's including our insane property taxes. Like sste, I wanted a house I could pay on my own so we bought our house based on my income since DH's job is not as stable as mine and we've gotten burned by spending too much on an expensive house before. Never again.

[BigBadDaddy]

I initially went above 25%, about 40% because I knew our income would be growing and real estate was on the way up (this was '99).
15 years later it's less less than 25% even with taxes, insurance, escrow, etc.
Glad we did it, we'll be paid off in 3 years and even with real estate taking a hit a few years back, it's still worth double what we paid.

My advice would be to stretch beyond 25% a little if you have good reason to believe income will be increasing substantially in the near future or you have an otherwise frugal lifestyle.
If you need a new car every few years and spend more on shoes/clothes than a small Central American country, then maybe stick to 25% or less.

[kerridean]

13%. I would never be comfortable with anything higher.

[squimp]

We did not - we spent a lot of time looking at our expenses and where we wanted to put our money and came up with a different percentage.

[♥ms.pacman♥]

i think the answer completely depends on if we're talking HCOL or LCOL areas, and whether you have 15 year or 30 year mortgage. i agree with PP in that for HCOL areas, just to get a house in a decent school district, in a safe area, that wouldn't cost tens of thousands in repairs from the get-go just to be useable, under 25% is probably darned near impossible for the vast majority of the population (i've lived in HCOL areas pretty much my entire life, aside from past 6 years).

however, we are now in a LCOL area, so I personally would not be okay with a mortgage payment that is more than 25% of take-home. I think the only reason that would cause me to do it is if we were VERY sure that income would increase significantly & permanently in the near future (e.g. SAHM going back to work full-time, or something). This is actually sort of what we did...when we bought our house (pre-kids), we assumed that we'd have two incomes. However, by the time we moved in, I still could not find a FT job, and then had kids soon after so took the opportunity to be a SAHM for a few years. For several years, our mortgage payment was exactly at 25% of DH's take-home pay (take home = what's actually deposited in our account after taking out taxes, health insurance, maxing 401ks, etc). For us, this was not ideal but okay for the short-term... with at least me as a SAHM we did not have to pay for daycare or anything, so everything else would go to bills, groceries, etc. Once I started working FT it was like down to 15% of our combined income, which we were comfortable with.



my personal and overwhelming preference is to be able to maintain my mortgage on my own if that is remotely possible in a market --I have just seen too much divorce, disability, even some deaths.


:yeahthat: Yep, totally agree. We agreed early on we wanted a things to that they would sustainable indefinitely with only one income. Yes, there is life insurance, but that doesn't even begin to cover nearly all scenarios. What if one of you hates your job and wants to quit, or go in another field (or be a SAHP)? What if you or your spouse are in an accident and is cannot work for several months (or ever again), or wants to take extended time off work to care for a sick/dying parent? I don't think I really realized the importance of this until late last year, see how miserable we all were with DH's insane travel schedule which had been going on for months, plus DH was getting unhappy at work and wanting to get out of his current field. DH was able to quit his job, take time off to launch a business and we are down to one income again (mine) temporarily. Our mortgage payment now is at 35% of my take-home pay, which seems all-out insane to me, probably because another 35% is going to childcare for 2 kids, so that does't leave much for groceries, bills etc...but it is doable for short-term (e.g. aside from 401ks, with just my income, we aren't able to save anything). We have a decent amt saved as emergency fund but I hate to be dipping into it unless it's a real crisis (e.g. unexpected medical bills, etc).

Again, i realize we have the "luxury" of doing all this because in my area, you can easily buy a decent house (e.g. 2,000 sq feet, less than 20 years old) in safe neighborhood, in a GOOD school district for $200k or less (maybe even $150k), so it just isn't really necessary IMO to spend so much. I realize is a *completely* different story than HCOL area.

[Mommy_Mea]

We live in a HCOL area, so we didn't follow a certain % rule. We took a look at our income, our expenses, and what we could afford while still achieving our minimum savings goals. Then we stretched our budget to buy a house that we could be happy in for the next 20 years.

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.

I should note that we made all our calculations based on just one income. I only work part-time, and the large majority of the income goes to daycare. But we wanted to make sure that if one of us lost our job, it wouldn't be a disaster. And even with stretching ourselves, we still only ended up with a 3 bed/1.5 bath, 1600 SF house on a tiny lot. Nothing fancy, but a house that doesn't require major upgrades, so we aren't pouring additional money into the house beyond mortgage/insurance/taxes.

[bigsis]

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.
This, except we would be in a 2 bedroom condo. We make ok money, but d*mn LA!

[niccig]

We did when we bought the house, then DH's pay got cut substantially the last few years, so I'm glad we didn't buy a house for the approved loan amount. For a while, the loan amount was a lot higher in relation to salary due to pay cut. We refied 18 months ago and that's helped bring down the percentage. Once I'm done with school, we'll be able to increase savings plus do some needed work on the house, but it'll still be modest renovations. I don't want to put too much more into the house as we've lost so much in equity.

[dogmom]

So I bunch of people have said that the mortgages are under 20% of their take home pay. Are there actually many people whose monthly mortgage is well under $1000? I'm working on 60k or under take home, which is still $100k salary, so well off. Or are you making over that? Because that's around $160,000 mortgage, which I don't think is outrageous. Are your homes less than 150K? Did you have a whopping down payment?

[hellokitty]

We're right at 22% with a 15 yr mortgage including escrow, b/c we want to finish paying off the house before we have two kids in college at the same time. However, we definitely under-bought a house. We could have gotten a nicer house, esp with a 30 yrs mortgage. I'm glad we did not buy a more expensive house, though. I notice that the ones that are more expensive than ours, got hit really badly with the housing market crash and in our area, it's those houses in the price range are going for cheap compared to what ppl paid for them. There is actually a high demand, low supply of houses in our price-range, so if we sold, I think we would do ok, while houses that are a lot lower than ours (glut of houses) and houses that are about 40K+ more expensive than ours, have taken a big hit.

[kristenk]

So I bunch of people have said that the mortgages are under 20% of their take home pay. Are there actually many people whose monthly mortgage is well under $1000? I'm working on 60k or under take home, which is still $100k salary, so well off. Or are you making over that? Because that's around $160,000 mortgage, which I don't think is outrageous. Are your homes less than 150K? Did you have a whopping down payment?

We refi'ed several years ago which brought our payment down more. We had been below $1000 even before we refi'ed, though. We bought our house about a dozen years ago for $17xk (don't remember exactly what it was) with an 80-10-10. So, 10% down, primary mortgage for 80% and a smaller loan for 10%. When we refi'ed, we got rid of the 10% loan. We've always paid extra on our mortgage. Our house is probably worth about $100k more now.

We qualified to buy a WHOLE lot more house than we purchased. We knew I'd stay home with any future kids and wanted to buy something we could afford to furnish and maintain. We live in a LCOL area.

[♥ms.pacman♥]

So I bunch of people have said that the mortgages are under 20% of their take home pay. Are there actually many people whose monthly mortgage is well under $1000? I'm working on 60k or under take home, which is still $100k salary, so well off. Or are you making over that? Because that's around $160,000 mortgage, which I don't think is outrageous. Are your homes less than 150K? Did you have a whopping down payment?

Well our current house is $330k in a LCOL area..we put 20% down did 30 yr mortgage and with taxes insurance etc our monthly payment is $2k. With both of us working this is less than 20%. With just me working like now take home is under $6k so it is over that (like 35%). With FT daycare for 2 kids (another $2k per month) there's barely enough to cover groceries, car ins, utilities etc. DH and I were actually talking about this the other day. .we could technically afford the house on just my income indefinitely, if only we didn't have daycare costs. The child care costs for 2 kids put us over the edge (now I get why people call it a second mortgage!!). So if I was a single mom, despite $100k+ income i would either be renting an apt or in a house under $200k, which here is totally doable (safe neighborhood, good schools etc).

[niccig]

I think it's a combination of where people live (LCOL/HCOL) and when they bought. We're in a HCOL area and have friends that bought 20 years ago. Their mortgage is half the cost of ours for about same size house. Other friends bought their first house when market was low, sold when market was high and walked away with 500K profit. That got funneled into new bigger house + renovations and their mortgage is about same as ours...so it all just depends.

If it's take home pay, we're over the 25% now due to DH's pay cuts but when we bought we were closer to that mark.

[AnnieW625]

I think it's a combination of where people live (LCOL/HCOL) and when they bought. We're in a HCOL area and have friends that bought 20 years ago. Their mortgage is half the cost of ours for about same size house. Other friends bought their first house when market was low, sold when market was high and walked away with 500K profit. That got funneled into new bigger house + renovations and their mortgage is about same as ours...so it all just depends.

Very similar to our situation to ours as well. Everyone we know who has sized up house wise now bought their first house or condo in their early to mid 20s and were either able to keep the house or condo as a rental and or sold it for a decent profit even when the market was at it's lowest.

[MelissaTC]

We purchased our home 14 years ago when prices were still low and bought smaller in a good neighborhood to ensure that we could live off one salary and afford our home. DH was making about 1/3 of what he makes now. Things were never crazy here so we have slowly built equity. Our mortgage payment is cheaper than any rent around here and our home is worth $100k more than what we paid so not bad. Our taxes are relatively low and insurance is reasonable.

[WatchingThemGrow]

I don't know exactly, but NO WAY are we near 25%. It's more like - just under 50% of DH's take home pay. We have some extra $$ from our rental income that helps a lot, but we are not in a comfortable place financially.

[jennilynn]

We're around 25-30% (DH's income varies so some months are tighter than others. We bought two years ago and got the maximum amount of house we felt comfortable with, hoping we will never have to move again. I do wish we had a little more wiggle room, but our home is nothing extravagant, just nice.

[amandabea]

We live in a HCOL area, so we didn't follow a certain % rule. We took a look at our income, our expenses, and what we could afford while still achieving our minimum savings goals. Then we stretched our budget to buy a house that we could be happy in for the next 20 years.

If we followed the 25% rule, we would have ended up in a tiny fixer upper house in a terrible school system.

:yeahthat: And technically, I'm in a high income bracket, but we live in a very HCOL area. We live in less than 2k sqft and our lot is barely bigger than the house...as in no yard...at all. Certainly wish for something different, but not at the cost (savings) of moving to a less desireable area (weather, commute, schools).

[doberbrat]

I don't think I agree with this rule, based on my own life experiences -- not intended to upset anyone.

After the sh*te I have seen go down, I would be uncomfortable buying a house I couldn't afford on my own, that is my rule. I recognize that that is not possible in all markets, it is not possible in all families because they choose/want/need a parent to SAH. I understand that tradeoffs must be made and some risks are worth taking. But my personal and overwhelming preference is to be able to maintain my mortgage on my own if that is remotely possible in a market --I have just seen too much divorce, disability, even some deaths.

I feel like the grim reaper here but I do think it is worth highlighting that everyone focuses on how much income and no one seems to attend to whose income it is and in particular the legal system's view of whose income it is if the marriage dissolves . . .

I agree with both you AND dogmom.

In an ideal world, yes, 20-25% should be the MAX you spend on housing. It was our goal to stay at 20% when we bought our house 17 years ago though we were approved for nearly double that. We stuck to our goal and got a small fixer upper in a good neighborhood.

BUT since then, housing prices have gone sky high. You cant buy a condo for less than $300k here. The TINY (900sq ft) house down the street from me that has a mustard yellow bathroom and a kitchen w/orange counters (ie, not renovated since the 70's) is $350k with 1/10 acre land. So even someone making 200k a year cant afford the smallest/cheapest house in the neighborhood going by the 25% rule.

And forget renting - I have friends who are renting with a 3br condo who are paying $3300 a month for rent plus utilities. And we're not in one of the ultra expensive towns in the area.

Sometimes, in order to be able to get into a decent school system and/or have a commute less than 1hr each way, you have to suck it up and pay and cross your fingers a bit and give up other things.