What percentage of your monthly income should go to housing?

[JK]

We are looking into our first home and was wondering if there is a rule of thumb as to how much of your monthly income should be dedicated to housing. I know mortgage < 2x income but was wondering if there was a general rule of thumb regards to monthly cash flow. I had read 20% somewhere but wasn’t sure if that was accurate or agreed upon by fellow WCI’ers. Also, is the percentage all inclusive...mortgage, taxes, potential repairs, etc... or does it only include some of those items. Also does the length of the mortgage (15 vs 30) factor in?

and rule of thumb is one thing, but what are most others on this forum doing. In real life, what percentage of your monthly gross income is going to housing?

[Peds]

<20% goal. you should include PITI.
i assume many here are under that.

[wa2106]

I think it depends on your income. Agree with Peds.

I rent - 4.9% of income toward rent. Probably another 1% toward insurance and furnishings/gardening.

[Lordosis]

Depends what term of mortgage you get. For a 30 year I would not want to be over 20% for my piti. For a 15 year it would not be as horrible to be at 25%.

We have a 15 year mortgage and piti is about 12% of my gross.

[bean1970]

I hate these rules of thumbs.
we spend 1% of after tax. I’d rather spend money on travel and our travel expenses are 10x my home expenses

when I die I’d rather be thankful for all the worldly experiences I’ve had than the money I dumped into window treatments.....

[Lordosis]

Travel is nice but I have to live in my house every day. We don't go overboard but I feel that spending money on your home can offer some high-yield satisfaction.

[bean1970]

yes i agree with that as well @Lordosis...but there is a difference between your true satisfaction and "expected satisfaction" or keeping up with doctor image.... many people would be completely satisfied in less costly homes, but they willfully choose not to in many instances.....and it is perpetuated by the banks and real estate industry pitching to people what they should spend. if i hired a real estate agent now and told them what our AGI was....i highly doubt we would be driving around in my neighborhood looking for a home.... i live in a two bedroom duplex for dual MD family....

[Lordosis]

I think we agree. Spend money on what makes you happy. You have nothing to prove. Ignore the Jones

[G]

Have you read through the threads under the "mortgages" section? This, and your other recent questions, have been discussed. A lot.

There are too many variables at play to create a rule of thumb. 20% of a peds ID in Berkeley might be a parking spot. 20% of a spine surgeon in rural Iowa might be a good portion of a small town. You might be a homebody and value a nice place, or you might rather travel in luxury like bean1970 . Etc.

[Peds]

I hate these rules of thumbs.
we spend 1% of after tax. I’d rather spend money on travel and our travel expenses are 10x my home expenses

when I die I’d rather be thankful for all the worldly experiences I’ve had than the money I dumped into window treatments.....

ill bite. im intrigued....what are your numbers?

[G]

My monthly mortgage payment has been 0% for the last few years...although they still get you with the prop taxes, eh?

[SLC OB]

I kick myself that we did not get a 15 year mortgage. I would try to do that. 1. for the lower interest rate. 2. pay it off much faster with less interest. 3. throw any extra at the mortgage or pay cash for your updating, furniture, maintenance needs.
We are currently in a home that was 1.5x our income (6 years ago) and now with the mortgage less than 1x our income. The cost is less than 20% of our take home pay without including quarterly and year end bonuses. We can totally afford it but if one of us gets sick, disables, etc. it would be tough. I am more into the finances than my husband and have told him and kids, if momma dies, pay off the house with the life insurance money or sell and move back to our rental house (just about paid off).

[Tim]

The problem with "rule of thumb" on housing is the normal percentage of income devoted to "living expenses" are in relation to normal incomes. 30% is normal.
If a doc makes $500k, that doesn't translate to $100k-150k for housing necessarily. The mindset should be based on your needs until you reach the point where the decision is do I really want to sink that much into a darn house or keep it invested. Then you can afford it. Typical question for a new attending and the first home purchase.

[wideopenspaces]

When we bought about 18 months ago house was a bit less than 2x income. Then our income doubled. So we now spend 5% on piti on our 30 yr mortgage. We are 38 and prioritizing retirement and I like having the higher cash flow. When retirement accounts hit 1M in the next 2 years, we will pay off the house. At least that's the plan. We'll see how it plays out.

[White.Beard.Doc]

We currently spend 2% of income on property taxes and another 1% on upkeep and utilities. That is with a paid off mortgage at this stage of life. When we were just starting out, we spent a bit more than 20% of our income when we bought our first attending house. It felt like a lot of money at the time, but given that the income was stable and growing, plus the fact that we stayed in that house for many years, it all worked out quite well.

[AR]

I kick myself that we did not get a 15 year mortgage. I would try to do that. 1. for the lower interest rate. 2. pay it off much faster with less interest. 3. throw any extra at the mortgage or pay cash for your updating, furniture, maintenance needs.
We are currently in a home that was 1.5x our income (6 years ago) and now with the mortgage less than 1x our income. The cost is less than 20% of our take home pay without including quarterly and year end bonuses. We can totally afford it but if one of us gets sick, disables, etc. it would be tough. I am more into the finances than my husband and have told him and kids, if momma dies, pay off the house with the life insurance money or sell and move back to our rental house (just about paid off).

Was there no point after the original purchase where your could have refinanced into a 15 with a lower rate than your 30?

[SLC OB]

Rate is low... more so bummed that we didn’t start with paying it off quicker. With such a low rate, we don’t need to spend money to refi, but it’s all about behavior, right? It would force the savings. Currently close to paying off rental then will attack the primary house. Hoping to have it payed off by 10 years but we’ll see.

[CordMcNally]

Get something less than what you want but more than the bare minimum that you need.

[spotty_dog]

I like this article about home affordability. https://wrennefinancial.com/much-physicians-spend-home/

We spend about 5% of gross on PITI for a 15-year mortgage. When we first bought the place, the payment was nearly 10% of gross, but the income has increased. I'm routinely grateful that we aren't tied to a big mortgage.