Housing should be what percentage of income?

[taubel]

I'm sure this has been said before, but I couldn't find a basic answer.

Is housing "supposed" to be 1/4 or 1/5 of your income? If you own a home, is this figure supposed to include taxes, utilities, water, garbage collection, etc? 

And do you estimate from your take-home pay or from your total income before taxes, health insurance, 401(k) contributions, etc.? 

Thanks!

[Sharlla]

Good question.  When i figure our percentage I just look at the total mortgage (including taxes, insurance and interest) and my total gross income.  Ours is roughly 10% but i think i always read you didn't want to pay more than 25% and I assumed it was like I figure mine.

[JamieCatheryn]

They usually say something like 28% for housing (mortgage/rent, insurance, property taxes) and debt payment obligations capped at 36%, but the less the better of course.

[Turquesa]

Dave Ramsey and his followers will say no more than 25%.  But IMHO, going lower is wise because you have wiggle room to pay extra on the principal.   

[TiredX2]

Just keep in mind that any of these things are rules of thumb.  It can vary a lot based on:

1) location

2) other debts

3) predicted income changes

4) total income

What works for one person may not work for another.  To determine how much we could afford to spend on our housing costs, we added together what we were currently paying in rent and the amount we were currently saving towards our down payment.  It worked fine for us, but more than doubled most recommended percentage levels.