Comments on: 30% Housing Costs: Net or Gross?

By: Wilderflower

Wilderflower — Mon, 16 Nov 2009 00:16:05 +0000

While appreciate what has been written, for those of us low to average middle-class earners (30-50k) who live in NYC, spending only 28% of one’s net income on rent is extremely difficult, if not impossible, when one is single and lives alone.

I’m lucky to be at 30% of my gross, for the time being.

By: Miranda Marquit

Miranda Marquit — Wed, 11 Mar 2009 00:16:10 +0000

You make a good point! Affordability depends on where you live as well.

By: Personal finance blog roundup « Monogamoney

Personal finance blog roundup « Monogamoney — Tue, 10 Mar 2009 23:39:56 +0000

[...] Bizzia asks whether homebuyers should spend 28% of gross income or net income on their mortgage. I say net! [...]

By: Hannah

Hannah — Tue, 10 Mar 2009 23:29:15 +0000

I totally agree! Here’s one reason: for some people, the difference between gross and net pay is larger than others. I live in NYC, so I pay high city and state taxes, in addition to high health care costs. As a result, 28% of my pretax income is almost 50% of my take home pay.

Here’s a post I wrote about this a while back:

http://monogamoney.wordpress.com/2008/12/06/how-much-should-you-spend-on-your-first-home/

By: Carnival of Personal Finance This Week : Yielding Wealth

Carnival of Personal Finance This Week : Yielding Wealth — Mon, 09 Mar 2009 19:31:56 +0000

[...] of course, my post was on the “rule of thumb” about 30% of your income going to your housing payment. Should it be net or gross? I argue that it shouldn’t be 30% — it should be 28%. [...]

By: Miranda Marquit

Miranda Marquit — Thu, 05 Mar 2009 19:08:06 +0000

I agree that we definitely need to rethink the way we handle money in our society. I think that 20% down is a bit harsh for the homebuying, though. The important thing is to live within your means and avoid buying what you can’t afford. If you can get a modest house with 5% down, and make the payments — keeping it to less than 30% of your income — I think that’s perfectly acceptable. But then, I’m biased, since I got a FHA loan and put 5% down (our payments are 25% of our income).

By: Jim

Jim — Thu, 05 Mar 2009 18:53:29 +0000

We need a return to old fashioned values when it comes to money. 28% with at least 20% down should be a rule of thumb. Cut up the credit cards, pay off principal early, have a substantial emergency fund, and don’t buy what you can’t afford. My grandfather bought the one and only house he ever owned in the middle of the great depression with cash when he was in his late 20’s. No help from FDR or the government. He was nothing more than factory worker with a third grade education, but extremely frugal and could make a dollar last longer than anyone I have ever known. Who could imagine that happening today?

By: Wojciech Kulicki

Wojciech Kulicki — Mon, 02 Mar 2009 23:46:51 +0000

I would agree that 28% is a good maximum for your total payment (including taxes, insurance, etc.). As recently as one year ago, you could still find mortgage companies giving loans with debt-to-income as high as 50% (this is the amount if you include all your loans and revolving debt payments). That would leave almost nothing to live on.

Especially in this economic climate, it’s important to look ahead and consider what would happen if job situations change.

By: Miranda Marquit

Miranda Marquit — Mon, 02 Mar 2009 21:25:41 +0000

Thanks for sharing, weakonomist. You make an excellent point about 50% of your income being taken up with debt obligations. After a while, this rate just isn’t sustainable. You want to keep it down, just in case something happens. The more of your income that is taken up in debt, the more trouble you’ll be in if something unexpected happens.

By: the weakonomist

the weakonomist — Mon, 02 Mar 2009 21:01:14 +0000

Yeah you want to keep it as a % of net. What I’ve always told people is if your payment on a 30 year fixed is more than 30% of your “take-home” pay then it’s too much house for you. I call it the 30-30 rule.

Your total liabilities should not be any more than 40% of your “take-home” pay in my opinion. So this would include cars, credit cards, etc.

You can survive at 50% for a short period of time. But that is not sustainable long term, especially if there is a layoff.