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How Much Should I Spend on Housing?

A man placing a tiny house on top of a stack of coins.

The question of how much to spend on housing has always been tricky. But if you’re buying a home in a seller’s market, this key consideration is even more daunting. Whether you rent or buy, understanding what percent of your income should go to housing can help you stay on track to meet your financial goals.

The bank may be willing to lend you much more than you’re comfortable repaying. While you may be dazzled by the possibilities, relying on your lender to decide what you can afford can result in buyer’s remorse. Of course, market fluctuations play a big role in how much house you can afford, but sticking with a reliable mortgage to income ratio will help keep your finances healthy in even the most volatile markets.

How much should you spend on housing?

One popular formula to determine what percentage of your income should go to a mortgage or rent is the 28/36 rule. With this formula, your mortgage, insurance, and taxes should come to 28% or less of your gross income. Your remaining debt should comprise no more than 12%, ensuring that the grand total amounts to less than 36% of what you make in a month.

More Mortgage to Income Ratio Formulas

When asking yourself how much you should spend on housing, you can rely on the 28/36 rule or any number of other percentage-based variations. The 35/45 model suggests you spend 35% of pre-tax income or 45% of after-tax income on housing.

The more conservative option of allotting 25% of your net income for a mortgage or rent gives you less wiggle room but allows more breathing room in your budget for savings and other budget categories.

Housing Affordability Calculators

When determining what percent of your income should go to housing, mortgage calculators can simplify the process. For example, the Quick Rate Calculator from Landmark National Bank makes easy work of deciding how much to spend on housing.

Just plug in a home’s purchase price, your credit score, the amount you have available for a down payment, and a few other figures, and you’ll have an idea of how much house you can afford in minutes. This option can help you prepare to speak with a lender about qualifying for a loan.

Deciding what percentage of your income should go to a mortgage or rent can be daunting in any economic climate. The question becomes even more overwhelming when you add skyrocketing housing costs to the equation.

There are many methods for choosing a mortgage-to-income ratio, but it’s hard to know which one will work for you. Whether you opt for a more conservative option or allow for a higher monthly payment, having a handle on your housing costs is key.

Learn How Much to Spend on Housing with Landmark National Bank

At Landmark Bank, we’re here to help with our quick-and-easy online calculator and a wide range of home loan options. Start the journey to finding your dream home today.  Stop at one of our conveniently located branch locations, or explore our financial calculators before meeting with us in person.