How much of your income should you spend on housing
This story is part of the CNBC Make It’s One-Minute Money Hacks series, which provides simple, straightforward tips and tricks to help you understand your finances and take control of your money.
There has been a lot of talk about affordable housing lately, especially as house prices and rents have hit record highs. Is your current home affordable? Here’s how to say it.
The most common rule of thumb for determining how much you can afford to spend on housing is that it should not exceed 30% of your gross monthly income, which is your total income before taxes or other deductions are out.
For tenants, this 30% includes rent and utility costs such as heat, water and electricity. If you own your home, you must include interest, home insurance, property taxes, and utilities, in addition to your mortgage.
This means that if you are making $ 75,000 per year before taxes, you shouldn’t be spending more than $ 1,875 per month on your home.
The 30% rule is based on how much a family can reasonably spend on shelter while still having enough money to pay for daily expenses like food and transportation.
If you are looking to buy a home, some financial experts also recommend using the 28/36 rule to determine what you can afford. The 28/36 rule states that in order for a home to factor into your budget, your housing expenses (such as mortgage payments, taxes, and insurance payments) must not exceed 28% of your monthly income. gross. Your total debt (including credit cards, student loans, and car loan payments) cannot exceed 36% of your gross monthly income.
If you are married or have a partner, keep in mind that this calculation includes the entire household, so you will also need to include their wages and debts in the equation.
So, is your current home affordable? If not, it may be time to consider cheaper housing for rent or consider refinancing if you can.
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