It's an age-old question: how much should I spend on housing? Here at EveryDollar, and Ramsey Solutions, we use the 25% rule.
What is the 25% rule?
The 25% rule is simple: spend no more than 25% of your monthly take-home pay (monthly net income) on housing.
What costs are included in the 25% rule?
The answer depends on whether you're a renter or a homeowner.
For renters, you'll include your monthly rent (surprise, surprise) with any mandatory fees you pay (e.g., pet fees, parking fees, trash/valet fees, required amenity fees, etc.), and your renter's insurance.
For homeowners, there are a few more costs to include: mortgage (principal & interest), homeowner's insurance, HOA fees, property taxes, and PMI (if applicable).
These costs should stay at or below 25% of your monthly net income.
Why only 25%?
You may have heard the "financial gurus" share that 30% is totally "fine" to spend on these costs. Here's the trade-off to consider: would you rather have breathing room in your budget or be "house poor" (where you can technically pay the bills but have nothing left in the check to pay off debt, build emergency savings, or build wealth)?
I'm looking to buy a home.
Fantastic! And congratulations. This is an exciting time.
If you're reading this, you probably prefer the Ramsey way of doing things, and want to work with a real estate agent who feels the same way. Let us take the guesswork out of finding the right professional for you to work with. Our vetted, RamseyTrusted Real Estate Pros are ready to help you find your future home.