Make sure that no more than 36% of monthly income goes toward debt.
“Most lenders follow the guideline that a borrower's housing payment (including principal, interest, taxes and insurance) should not be higher than 28 percent of their pre-tax monthly gross income,” says Winograd.
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.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
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. Let's take a closer look at each category.
U.S. consumers carry $6,501 in credit card debt on average, according to Experian data, but if your balance is much higher—say, $20,000 or beyond—you may feel hopeless. Paying off a high credit card balance can be a daunting task, but it is possible.
What house poor looks like will vary by homeowner. But, generally speaking, those who spend more than 30% of their monthly income on housing costs (including their mortgage and other expenses like insurance and utilities) are housing cost-burdened.
Simply put, the 20/10 rule advises that you should avoid accumulating long-term debt that exceeds 20% of your annual income, and you should avoid debt payments of more than 10% of your monthly income.
The 28/36 rule is a standard that most lenders use before advancing any credit, so consumers should be aware of the rule before they apply for any type of loan.
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.
Lenders prefer that no more than 28% of your gross monthly income (the amount you earn before taxes) should be spent on your monthly mortgage payment, including your mortgage principal, interest, homeowners insurance, property taxes, and homeowners' association fees.
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finance provides a percentage guideline for how much of your money should go toward housing, this rule is a little outdated in 2024.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.
If you make $3,000 a month ($36,000 a year), your DTI with an FHA loan should be no more than $1,290 ($3,000 x 0.43) — which means you can afford a house with a monthly payment that is no more than $900 ($3,000 x 0.31). FHA loans typically allow for a lower down payment and credit score if certain requirements are met.
More than a third of 18 to 24-year-olds have debts of almost £3,000, new figures suggest. The same number say their debts feel like a "heavy burden" according to research for the Money Advice Trust by YouGov. Richard from Scunthorpe tells Newsbeat "it's so easy to get into, so hard to get out of".
While this figure can vary based on factors such as location, family size, and lifestyle preferences, a common range for a good monthly salary is between $6,000 and $8,333 for individuals.
Key takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
The most common way to use the 40-30-20-10 rule is to assign 40% of your income — after taxes — to necessities such as food and housing, 30% to discretionary spending, 20% to savings or paying off debt and 10% to charitable giving or meeting financial goals.
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“They can negotiate with creditors on your behalf to lower interest rates and consolidate payments into one monthly bill.”
The nationwide median price of a new single-family home is $495,750, meaning half of all new homes sold in the U.S. cost more than this figure and half cost less. A total of 134.9 million households — roughly 77% of all U.S. households — cannot afford this median-priced new home based on a mortgage rate of 6.5%.
cash poor (comparative more cash poor, superlative most cash poor) (business, finance) Possessing considerable economic assets, but unable to quickly or easily liquidate them for monetary transactions.
One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings.
At the close of 2019, the average household had a credit card debt of $7,499. During the first quarter of 2021, it dropped to $6,209. In 2022, credit card debt rose again to $7,951 and has increased linearly. In 2023, it reached $8,599 — $75 shy of the 2024 average.
By the time you reach your 40s and 50s, debts should be lower or almost gone. Student loans should be non-existent, you may be paying for cars in cash, you might be pre-paying your mortgage, and credit card debt should not exist.