Multiply your gross monthly pay by 30%
Take the amount you earn before taxes each month and multiply it by 0.30. This is the maximum amount you should spend on rent each month, according to the 30% rule.
1. Do mortgage lenders use gross or net income? Mortgage lenders typically use your gross income when determining how much you can afford to borrow. Gross income is your total earnings before any taxes or deductions.
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.
It doesn't include taxes or investment fees.
The rule guides how much to withdraw from your portfolio each year and assumes that taxes or fees, if any, are an expense that you pay out of the money withdrawn. If you withdraw $40,000, and have $5,000 in taxes and fees at year-end, that's paid from the $40,000 withdrawn.
Retiring at age 65 with $6 million is entirely possible, even for people with quite comfortable lifestyles.
Just 16% of retirees say they have more than $1 million saved, including all personal savings and assets, according to the recent CNBC Your Money retirement survey conducted with SurveyMonkey. In fact, among those currently saving for retirement, 57% say the amount they're hoping to save is less than $1 million.
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.
The Bottom Line. On a $70,000 salary using a 50% DTI, you could potentially afford a house worth between $200,000 to $250,000, depending on your specific financial situation.
For individuals, gross monthly income is the total amount of money received in a given month before any deductions, including taxes. The sum of your gross monthly income comprises financial earnings from all available sources, including but not limited to: Regular wages or salary.
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.
On a $90,000 salary, you could potentially afford a house worth between $280,000 to $320,000, depending on your specific financial situation. This range assumes you have a good credit score and manageable existing debts.
Lenders want your monthly debts to be affordable and recommend keeping your total monthly debt — including your mortgage payment — under 35% of your pretax income and 45% of your post-tax income.
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.
The 30% ruling means that 30% of the gross salary can be paid out tax-free as a non-taxable allowance. This is intended to cover the additional costs an international employee incurs when working and living in the Netherlands. The most common way this scheme is applied is by reducing the employee's gross salary by 30%.
You must make $5,000 per month to afford a $1,500 monthly rent.
You'll likely need an annual salary of at least $250,000 to finance a $1 million dollar home with a 30-year mortgage, assuming a 20% down payment and low escrow costs. The income required to purchase a million-dollar home varies based on your location, loan amount, mortgage rate and other affordability considerations.
To afford a $700,000 house, you typically need an annual income between $175,000 to $235,000, 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 Bottom Line. To comfortably afford a 400k mortgage, you'll likely need an annual income between $100,000 to $125,000, 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.
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.
The 30% Rule
If you're a renter, this includes your rent plus any utility costs, such as heat, water, and electricity. If you're a homeowner, your housing expenses include your mortgage principal and interest, property taxes, homeowners' insurance, any HOA fees, and utilities.
Your net worth is what you own minus what you owe. It's the total value of all your assets—including your house, cars, investments and cash—minus your liabilities (things like credit card debt, student loans, and what you still owe on your mortgage).
By age 35, aim to save one to one-and-a-half times your current salary for retirement. By age 50, that goal is three-and-a-half to six times your salary. By age 60, your retirement savings goal may be six to 11-times your salary. Ranges increase with age to account for a wide variety of incomes and situations.
Rich retirees: In the 90th percentile, with net worth starting at $1.9 million, this group has much more financial freedom and is able to afford luxuries and legacy planning.