Does anyone actually live within the 33% housing rule? - Page 3

[Drummer's Wife]

I do think that housing costs less than 33% of household income is not only ideal, but reality for most families. Sure, there are people who pay a lot less for their home/apartment every month, and then there are plenty of people who pay more than 50% on housing - either by choice or necessity (such as job loss or HCOL area).

The reason I think it's a good standard average is because most landlords or apartment managers require you to make 3 times the monthly rent, and likewise, most mortgages will only let you borrow a certain amount depending on your income. For example, FHA makes sure that your monthly mortgage, taxes, etc., are 30% or below your gross pay, with an exception that allows for 35% if you do not have a lot of other debt. Plus, of course, it's what financial experts advise, so that way you have enough money leftover for all other living expenses and savings.

Then you have other aspects that complicate this "rule" b/c like it's been said, if you have a high income, you have a lot more money leftover even after paying whatever percentage to housing. And people in HCOL areas often have to rent indefinitely, or have a huge downpayment, or, pay a higher percent for housing. Some people are more comfortable basing the percentage on one income, even if they are a dual-income family - which is wise in case of job loss or SAHP'ing in the future.

It's obviously not a strict rule all-around, but I do think most families fall somewhere around that percentage, with outliers on both ends.

[taubel]

We live in the northeast, in an average col area. My DH also makes about 60K, but then he has a side job, and I have a part-time job. Otherwise, we could not afford to live in our town. Our house is small and very average. Most of my friends are not wealthy and live relatively frugal lifestyles, but our house is smaller than all of theirs. 

We bought our house more than 8 years ago, and did have a 20% downpayment (with the help of relatives). At this point, even with our high taxes, we pay less per month than we'd pay to rent a 3 bedroom apartment or house in our town. (Of course, if you factor in home repairs, that would change a whole lot). 

[mnnice]

I think I have always lived within the 33% rule (even as undergraduate working 20 hour per week at $3.50 an hour).  That place was a serious dump.   The exception to that was as a graduate student when I essentially worked 30 per week for no pay and still had papers and assignments to write.

That's different than it is feasible for everyone all the time.  I also don't buy the just because your income is higher you can have large percentage to go to house.  Living in a cheaper neighborhood is one of the best ways to accumulate wealth because you are not surrounded by others showing you new ways to spend your money.

[~Amy~]

We're at around 13% of our net. We were probably around 30% when we bought this house. We could afford a larger home but we don't need one. We live in a relatively low COL area but my DH works for a company based out of a much higher COL area and they are very good to their employees.

[CatsCradle]

Originally Posted by Linda on the move 

We are under the 33 guideline with no outside help. However, we also are in our mid 40's and my DH has a higher than average income. We live in a medium COL area, and we opt to live in smaller house than many in our income bracket would choose to live in.

It is because of sacrifices that we've made for DH's career for the last 15 years that we are comfortable financially. We didn't have this comfort starting out. We've built it over time.

Part of it is choices about how to spend money now -- people he works with are surprised when they see our house. It's a nice house in a nice, desirable area, but it is much smaller and less impressive than they expect someone with his title and income to live in -- because the norm in our culture is to be "house poor" no matter what the starting salary!

This is us too...we built everything over time.  We rented for about 13 years before we bought.  We didn't have any outside help.  We were fortunate in that we bought our apartment right before the big housing bubble, and we opted to live in a less cool/hip neighborhood so that we could get more bang for our buck.  At the time that we bought, it was about 35% of our income, now it is about 15% of our income because we've gotten income increases in the last ten years.  I am sure there are people around us, however, who are house poor, but they choose to live in super hip neighborhoods and I'm pretty sure that they pay a significant price for that.  DH and I make a good salary but to live in something bigger and more well-appointed around here would put a definite strain on our cash flow.  Whatever we save in living costs goes to DD's schooling.  That's more important to us at this juncture in life.
 

[wildmonkeys]

We have had no outside help. We are over 33%, but we live in a high COL area and live on one income.  I don't think the percentage matters as much as whether you have enough money leftover after paying your mortgage to live somewhat comfortably and save for the future - we do so I don't worry about the 33%.

[aeterna]

We're both 28, bought our first house in a medium COL area 4 years ago with no help from anyone (unless you count the contract we negotiated with the sellers to cover part of our down payment!). Neither of us lived at home or had any financial support from our parents/families since age 18 (or earlier). When we bought the house, we were each making about $32k/year, so our take-home pay was about $4k/mo. Our mortgage/insurance/taxes were $950/mo, so about 24% of our income. Our mortgage broker tried to convince us we could afford literally twice as much house as we bought (since we had very little debt otherwise), but we didn't want to be house-poor, and stuck to the budget we were comfortable with.

I lost my job about a year later, and decided to go back to school instead of finding a new job, so our housing expense suddenly took up a much larger share of our budget; taking into consideration his annual pay increases as well as a recent increase to our taxes, it's now about 40% of our household income. But because we have essentially no other debt (just student loans), we were able to make it work. We would have been unable to pay the mortgage if we'd listened to the broker about what we could afford (or I would have been forced to take another job I hated, instead of going back to school for the credentials to do what I really want to do). It's definitely tighter around here, but we get the bills paid.

We're looking at moving within the next year (to a smaller community, near the job I am hoping to land after I graduate) and we will probably increase our housing budget just a tad (this house was $125k, we may look at houses up to $150k) - but that's more because we want some land, than we want a bigger house! =) We're also going to both be working again, so it will be feasible while maintaining a comfortable standard of living (tight paycheck-to-paycheck is too stressful to be comfortable, so we're not interested in that). 

All up to what exchanges you're comfortable making. We wanted a house, so we've foregone vacations and nice cars to be able to afford one. A friend of mine leases a new car every 2 years and in order to afford this, continues to rent - I don't understand that at all, but that's how he wants to spend his money, I guess!

[mylegs]

Our PITI is about 12% of our take home pay.  We live in a fairly reasonable cost of living area.  When we purchased our home eight years ago, it was closer to 30% of take home but promotions and raises have lowered that substantially. 

DH and I do very well...as do most of our friends.  But most of our friends and coworkers have significantly "upgraded" their housing (bigger, "better" neighborhoods) and are right back to the 30% they were starting out.  Many of them are miserable in their jobs but can't leave or else they'll have to take a beating selling their amazing house to afford something smaller.  Now that we're not so sure we want to stay in this race forever, we're so happy that we didn't upgrade and have a nice house in a nice neighborhood.  We can afford our mortgage on my lower salary alone--it'd be much tighter, but doable.

So I agree that that 30% of a lower income for housing has a greater effect on quality of life than 30% of a higher income.  But, I do think that higher income homeowners forget that they'll always need a place to live, that you can't always easily cash out of a home, and that you may not make the big bucks forever. 

[choli]

Originally Posted by mylegs 

So I agree that that 30% of a lower income for housing has a greater effect on quality of life than 30% of a higher income.  But, I do think that higher income homeowners forget that they'll always need a place to live, that you can't always easily cash out of a home, and that you may not make the big bucks forever. 

That's quite a generalization - I'm sure plenty of higher income homeowners are perfectly well aware of that. Many prepay on the capital so that the mortgage is paid off years early.

[tinuviel_k]

Our payment is 30% of our net income right now. If you add in the extra $100 we put towards the principal, the $150 per month we put into a long-term house repair savings (think dead furnace, new siding, new roof, catastrophic leak), and the $50-$100 we put towards small house repairs and such it is more like 36% of our net income.

We bought at the lower end of the price range in the area, but looked hard and found a nice, solid house with a yard, garden space, garage, and with enough charm and personality to make it feel like home. We had to give up a lot of what we wanted: acreage, lots of fruit trees, shop space, house style, and we live closer to a busier road than we would have liked. but we weren't willing to take on the financial risk of a greater debt to income ratio.

[pammysue]

We just purchased a home, in the last month, and we are at about 25%. DH is a pastor at a small-ish church and I stay home. We are in a small town with reasonable home prices and a lot on the market. We qualified for 1st time home buyer down payment assistance and the seller paid a lot of the closing costs, so we needed very little cash on hand, though we had enough cash saved to buy the house without either of those. We also got a low interest rate (4.125%) which helps a TON. We are actually paying about $120 less than we were in rent and our new home is bigger.

So much depends on the area you live in though.  

[Narawen]

I rent, but my apartment (with utilities, I only pay for internet directly) is about 15% of my net income. If I was able to put 20-30% down on a home, I could find a house in the local area where the payments on a 15 yr mortgage would be under 10% of my net income, but those houses are in really poor condition and the remodeling would probably cost more than the selling price of the house itself. Part of it is because I have a good salary; I'm single, just out of school living on my own but make more than the "average" income for the U.S. It's also about finding the right places. I looked at several apartments and to be closer to work and have all the amenities I wanted, it would have been 25-30% of my net pay. A co-worker who makes the same salary as I do lives just a few miles from me and pays 30% of her net income on rent, not including utilities. She lives in a 2-bedroom apartment with more amenities, I live in a bare-bones studio.  I chose to live here and save money so I'd be able to pay off my student loans within 18 months, and I'm on track to do that. 

In higher COL areas or with lower salaries, I can see how it'd be much more difficult to stay within those guidelines, but many people live above them out of choice. 

[taubel]

Question - Are most of you basing the percentage on your take-home pay (after deductions for health insurance, 401(k), etc.)? And for housing, are you including the mortgage, school/property tax, insurance, etc.? Or are you also including monthly utilities, water, garbage, etc.? 

[yeahwhat]

I'm basing my numbers on the money that goes into our account each month.  We have no health insurance or 401k.  We do have a separate retirement account that gets paid out of money that is deposited in our main account.

I'm including mortgage, property taxes, house insurance, property and school taxes (which include water and garbage) and heat/electricity.  I'm not including phone/internet/cable because those aren't essential to the operation of the house.  I think I included a small amount for repairs, but we probably spend more than that.

[Ramzubo]

I base mine on dh's take home pay after all deductions (my pay is contract and variable so we never use that).

For housing cost, I include the mortgage, insurance, and all taxes. We don't pay for water or trash pick up and our fuel cost vary wildly so I don't incude the cost of oil.

Originally Posted by taubel 

Question - Are most of you basing the percentage on your take-home pay (after deductions for health insurance, 401(k), etc.)? And for housing, are you including the mortgage, school/property tax, insurance, etc.? Or are you also including monthly utilities, water, garbage, etc.? 

[MariaMadly]

We're in the northeast, in our late 40's, both kids now out of the house, I'm a stay-at-home.  We're at under 20% of DH's take-home pay for P&I, taxes, insurance, and DS1's off-campus rent where he attends school (we are co-signers).  Our current house is custom built, but very plain with a simple roofline, 28 x 28 footprint.  We bought our land while living in our previous house and had our lot payments while paying the prior mortgage.  We're currently able to add a couple hundred per month additional principal.  What it took to get here was:

DH was active duty military when we were first married.  Free government housing.

Family sold us our first home and gifted us a huge chunk of equity as part of the transaction.

Family gave us a hefty cash gift while our current home was under construction.

Lucky timing: we bought our first home when values were low, and our current lot before prices skyrocketed.

DH is currently active duty military; he gets a housing allowance which I include as take-home pay.

Our sons attend schools with very, very generous financial aid practices.

It took a lot of luck, a lot of time, and most of all a lot of help from people and institutions.  Our good fortune hasn't escaped us, and neither has the fragility of anybody's situation nowadays.

[honeybunmom]

Our mortgage is about 10% of my monthly take home pay.  But, I do also own a condo, the cost of which is not fully covered by the rent.  Even with that, we are under the 33% guideline.  And we live in Chicago, in a house.  But not in a great neighborhood.  How'd we do it?  My husband literally went knocking on doors asking people if they wanted to sell their homes.  And he found one that said yes.  We have spent a BUTTLOAD rehabbing it.  Not sure I would do this again.  What it has saved me monthly, has cost me in other areas both financial and emotional.

[aeterna]

Originally Posted by taubel 

Question - Are most of you basing the percentage on your take-home pay (after deductions for health insurance, 401(k), etc.)? And for housing, are you including the mortgage, school/property tax, insurance, etc.? Or are you also including monthly utilities, water, garbage, etc.? 

I'm calculating based on take-home pay (after taxes, insurance, 401k, FSA, etc) and including mortgage, homeowner's insurance, and property tax (as those are included in my monthly payment, with insurance & tax monies deposited into an escrow account for annual management).

[crunchy_mama]

Ours is about between 15-20% take home pay.  I honestly don't remember the percent when we bought, probably around the 30% or so.  Dh has had raises since then- it has been 9 yrs now on the mortgage.  We live in a low col and dh does decently.  The biggest help has been that we went w/ a simple starter home that wasn't even finished when we moved in, we finished it as we could.  We had a fire 4 yrs ago and decided to make it a bit bigger and nicer on a few things but that meant that we didn't spend money on furnishings and yet again we took a few years to finish it, as we could afford to do it.   We have a bit over 5 yrs left but should have enough saved at the end of next year to pay it off but we will not be.  That will be our emergency, car and ded fund.

[Knittin' in the Shade]

Ours is just over 30% of our real take-home (so, after deductions, health care ins, FSA, 401K have been taken out) and about 18% of total salary (gross).  The only help we had purchasing our house was my parents paying for closing costs (we could have afforded it, but it's tradition in my family for parents to pay closing costs on their kids' first house, as a housewarming gift)  We purposely bought far less than we were "qualified" for and have chosent o stay in our small 3 bedroom, no garage-no frills home (despite having 4 rapidly growing boys, lol) because we want the security of a smaller mortgage payment, and being able to save a significant amount (for retirement and just in general) than we'd be able to do if we upgraded our house. Plus, even though the days feel long now with us all squished in here, it will be the blink of an eye before they are all out and we're alone and not stuck in a too-big-for-2-people house!