To afford an $800,000 house, you typically need an annual income between $200,000 to $260,000, depending on your financial situation, down payment, credit score, and current market conditions. However, this is a general range, and your specific circumstances will determine the exact income required.
The 30% rule advises consumers spend no more than 30% of their monthly income on their mortgage or rent payments, leaving wiggle room in case of unexpected expenses, job loss, family planning, and other goals.
Ever heard of the 30% rule? It's the idea that you should budget a minimum of 30% of your gross monthly income (i.e., your before-tax income) for housing costs, and it's practically a personal finance gospel. Rent calculators often use the 30% rule as a default assumption to determine how much house you can afford.
While the world of personal finance provides a percentage guideline for how much of your money should go toward housing, this rule is a little outdated in 2024. Rent prices are down from their peak in August of 2022, but they're still dramatically higher than before the pandemic.
Key takeaways. The traditional rule of thumb is that no more than 28 percent of your monthly gross income or 25 percent of your net income should go to your mortgage payment.
First, calculate your monthly take-home pay, then multiply it by 0.70 to get the amount you can spend on living expenses and discretionary purchases, such as entertainment and travel. Next, multiply your monthly income by 0.20 to get your savings allotment and 0.10 to get your debt repayment.
And if you do hold big hairy audacious financial goals or want to get to financial independence, that savings rate needs to be at least 20% of your gross income... but more realistically? You should aim for 30-40%.
The 28% rule
The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (including principal, interest, taxes and insurance). To gauge how much you can afford using this rule, multiply your monthly gross income by 28%.
The house you can afford on a $70,000 income will likely be between $290,000 to $360,000. However, your home-buying budget depends on quite a few financial factors — not just your salary.
Timing Requirements – The “3/7/3 Rule”
The initial Truth in Lending Statement must be delivered to the consumer within 3 business days of the receipt of the loan application by the lender. The TILA statement is presumed to be delivered to the consumer 3 business days after it is mailed.
To comfortably afford a $600k mortgage, you'll likely need an annual income between $150,000 to $200,000, depending on your specific financial situation and the terms of your mortgage. Remember, just because you can qualify for a loan doesn't mean you should stretch your budget to the maximum.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
A person who makes $50,000 a year might be able to afford a house worth anywhere from $180,000 to nearly $258,000. That's because your annual salary isn't the only variable that determines your home buying budget. You also have to consider your credit score, current debts, mortgage rates, and many other factors.
Is 40% of income on a mortgage too much? Spending 40% of your total income on your mortgage is probably too much — most mortgage lenders will either not approve your application or charge you a very high interest rate.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
Bottom line. Like any conventional wisdom, the 28/36 rule is only a guideline, not a decree. It can help determine how much of a house you can afford, but everyone's circumstances are different and lenders consider a variety of factors.
50% of your net income should go towards living expenses and essentials (Needs), 20% of your net income should go towards debt reduction and savings (Debt Reduction and Savings), and 30% of your net income should go towards discretionary spending (Wants).
The above chart shows that U.S. residents under 35 have an average of $49,130 in retirement savings; those 35 to 44 have an average $141,520; those 45 to 54 have an average $313,220; those 55 to 64 have an average $537,560; those 65 to 74 have an average $609,230; and those 75 or older have an average $462,410.
If you have a large amount of debt that you need to pay off, you can modify your percentage-based budget and follow the 60/20/20 rule. Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.
Most experts recommend putting 10 to 15% of your income into a retirement account each year.
Here's how it works: *30% goes to outstanding debt and catching up if needed - PAST. *40% goes to current living expenses, emergency fund, other needs and wants - PRESENT. *30% goes to saving for long-term goals, like homeownership, retirement, education and other large purchases - FUTURE.
One way to gauge how much is the right amount to spend on fun is the 50/30/20 rule. According to this method, no more than 50% of your income, after taxes, should go toward needs; 30% of your income can go to things you want, including fun; 20% should go into savings.