You Won't Believe How Many Homeowners Spend More Than 30% of Their Income on Mortgage Payments

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  • Generally speaking, your total predictable monthly housing costs should not exceed 30% of your take-home pay.
  • Exceeding that threshold could put you at risk of falling behind on different bills and even losing your home.

It's an alarmingly large number.

Buying a home is a huge financial undertaking. And it's important to err on the side of being conservative when taking on a mortgage loan

In fact, a good rule of thumb is to make sure your total predictable monthly housing costs don't exceed 30% of your take-home pay. But recent data from Today's Homeowner reveals that many homeowners aren't sticking to that guidance at all.

Some homeowners are in over their heads

On a national level, U.S. homeowners spend an average of 28.4% of their pre-tax income on mortgage payments. And homeowners in 21 states and Washington, D.C. spend more than 30% of their median household income on mortgage payments.

That's a problem, though, because when we talk about keeping total monthly housing costs to 30% of pay or less, it's not just a mortgage payment that needs to be accounted for. Rather, that figure should include all fixed, predictable ongoing housing expenses, including:

In fact, some financial experts will even tell you that the 30% threshold should include expenses like maintenance and repairs. However, you're okay to leave those out for a couple of reasons. First, they're generally not a fixed expense. Secondly, you may not have to pay for them every month. It is important to have plenty of money set aside for home-related repairs and emergencies in a savings account, though. 

What happens if you go overboard?

Spending more than 30% of your take-home pay on housing could have serious consequences. For one thing, you might fall behind on some of your bills, forcing you into expensive debt and causing your credit score to take a massive hit.

Plus, if you take on housing costs that are too high, you might fall behind on your mortgage itself and risk losing your home. So rather than run that risk, aim to stick to the 30% rule.

If you bring home $4,000 a month after taxes and other deductions from your paycheck, that means you really shouldn't be spending more than $1,200 a month on housing expenses in total. So if you're looking at signing a mortgage that will leave you on the hook for a monthly payment of $1,175, you're actually risking getting in over your head, since you won't have much wiggle room to pay for other things like property taxes and insurance while sticking to that 30% threshold.

Now, it may not be easy or feasible to keep housing expenses to 30% of pay or less in some parts of the country. If you're moving someplace where the average cost of a tiny starter home is $1 million, then you may be looking at higher housing expenses that are just plain unavoidable.

But for the most part, try your best to keep your total housing costs to 30% of your pay or less. Doing so might not only help protect your finances, but also, make it so you're not walking around perpetually stressed over the cost of being a homeowner.

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