Tue 12 Feb, 2008 02:43 pm
My question is really just curiosity and won't affect my personal decisions but I'd like to know what's considered an appropriate percentage of one's income to spend on housing as well as what the average is regardless of what's recommended.
Of course, market and income probably affect this. As lower income families probably need to spend a greater percentage on housing and some markets dictate higher housing costs but I'm wondering if there's some conventional wisdom on this that I haven't heard of.
The rule of thumb for getting a home mortgage used to be that your monthly payment couldn't exceed 30% of your gross income. Not sure how much that 'rule" gets applied any more.
The old standards are that no more than 28% of your annual gross income should be spent on 'housing' defined as principle, interest, taxes, and fire insurance. Also, no more than 38% of your annual gross income should be used to pay toward debt liability (housing, other loans, credit cards...).
I think these guidelines are still in place for conforming loans. The problem with the housing crisis in the US is that folks were taking out non-conforming loans on adjustable rate mortgages and then not being able to afford the increase in payments when the adjustment period came up and the rates increased.
Found a link that uses 28% and 36%
Housing costs -- including principal, interest, taxes, assessments or any other fees -- shouldn't exceed 28% of your gross or pre-tax income.
Debt payments -- including mortgage, auto loans, student loans, child support and credit card bills that will take more than six months to pay off -- shouldn't exceed 36% of your pre-tax income. Source
In Germany, people pay an avarage of 22,7 % of their net income for rent.
The average housing costs (as defined above) are 34% for the eo - 40 years old group down to 11% in the 60+ group.