My debt is 7.2% of gross monthly income. No debt except a really cheap mortgage. It’s a nice way to live.
Interesting. I’m just under 20% (including everything - tax, 2nd, etc.).
I’m sure the peeps in CA would have a much higher percentage vs. people in the most midwest areas?
just under 20 percent here also
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Can someone explain? Are these guidlines a good rule of thumb?
No they aren’t. Just like everything they are “rule of thumbs”.
I think these are meant as “Upper end” calculations and are bent towards very high percentage into the home and little other debt. Considering at 50K annual salary the **annual salary x 0.28 / 12 (months) **gives you a 1166 monthly payment and the **Maximum allowable debt-to-income ratio = annual salary x 0.36 / 12 (months) **calculation gives you around 1500$, that leaves you with 334$ a month total additional debt payments. So that 334$ has to cover car payment, credit cards, home depot, furniture store etc etc.
I think where people get in trouble, especially with the first house, is that 334$ number. Sure 1166 is right and maybe you have a 250$ car payment and only 30$ a month minimum payment on a credit card so everyone thinks they’re good. Then they go and buy a house…then they need to do a bit of fixing up, buy furniture, a flat screen TV, lawn mower, fertilizer…yada yada yada. Then all of a sudden the 334$ has ballooned to 750$ a month. so their total monthly bills are just under 2K BEFORE utils, food, going out, cell phone again yada yada yada.
So at 50K a year, putting away 10% in a 401K or some other retirement fund, you’re probably bring home around 2700 a month. So you’re left with 784$ for food, clothing, car insurance, Utils and suddenly things start to get really tight.
Again they are “Rules of thumb” and decent ones if you are aware of what they are based on and are willing to live along those rules. Obviously by the state of the foreclosures and saving rates in the US MOST don’t.
Again as a rule of thumb I think they apply more aptly the higher you go in the income range as a larger percentage of your income is “disposable” as well. You have far more “breathing room” in these equations at 100K than you do at 30K and so on.
That being said, with kids, cars, retirement, etc our “House debt” is around 13% of our annual and our overall debt is around 17%. Even with those numbers things are “Tight” around here since we have two kids, one in private school and “life in general”.
There’s simply NO WAY we could live with the 28/36 numbers. No way.
~Matt
I just added mine up…I am at just over 20% - HOWEVER, I have a 15 year loan not the typical 30. Not sure if that sways your data much. Thinking of a ReFi and getting a 30 (or moving to Medford Or) and putting more money into the markets as opposed to the house payment.
HC- I’ve *always *disagreed with that figure. Right now, my pure debt, which is only mortgage, excluding expenses such as ins. and property taxes is 9.6% of gross monthly income(with a 15 yr mort). I find this allows me to heavily invest for my retirement, enjoy life and travel like a fiend – my true passion.
Those that I know who follow the figures you cite end up with a very tight budget, as illustrated by MJuric.
I didn’t care if I had the biggest house on the block or in the toniest subdivision, I just knew I wanted to travel and enjoy the sports in which I participate – which can be expensive, as we all know 
Zero! We worked like dogs for the early years and put every spare penny towards the mortgage. Put every bonus and raise towards it as well. Paid it off in 7 years. The freedom and financial stability you get from paying off your mortgage is incredible. It is especially beneficial here in Canada where our interest isn’t tax deductible (or whatever tax benefit the US gets).
Nice!
I’m at about 10% for just my mortgage only but closer to 17% if you include taxes and insurance. Overall debt is closer to 28% due to student loans,
I’d be curious how many folks, especially in bigger markets, shouldn’t be in the house they are currently living in based on these ratios. My guess would be that it is a high percentage. I know I don’t qualify.
**Are these guidlines a good rule of thumb? **
I don’t let us exceed 25% for total DTI. If you want to be aggressive, be aggressive on the saving side of the equation.
Yes would be interesting, and would also explain why it’s really tough to get into a house in some markets. Consider Someplace like San Francisco with a median home price of 750K and a median household income of 57K. Not too many people buying at those 28/36% levels in a market like that.
~Matt
That being said, with kids, cars, retirement, etc our “House debt” is around 13% of our annual and our overall debt is around 17%. Even with those numbers things are “Tight” around here since we have two kids, one in private school and “life in general”.
There’s simply NO WAY we could live with the 28/36 numbers. No way.
~Matt
Well, I have 3 kids, put 10% into retirement, am saving for the kids college and mine is 30%, and I feel money is pretty free here. Now I don’t have any TV services (just an antenna in the attic), have no cell phones, Limited local calls on the phone service (phone bill is $20/month + $20/month for DSL). And no I don’t make 6 figures. Cars usually go about 10yrs. currently Van is 1yr old, other car is 6yrs old. Still paying on the van at $300/month but thats the only other debt so under the 36% number.
Of course lately I am starting to think I am poor Its just nobody ever told me so I actually thought I had it pretty good. Ya my biggest tv is 32" and is 15yrs old.
12%
Been in the house over 10 years and I live in a relatively cheap part of CA.
“Right now, about 50% of my net monthly goes towards house stuff (mortgage/home loan). Ugh!”
That’s really pushing it. What kind of house do you live in? Forget gross income: Sort of dangerous to think that way, really. I think 25-30% of take home should be more like it. I spend about 27%. I could never afford more than 35%.
Then there was that thread about car loans: I bet some people spend 1/3 of their take home income on cars/gas/insurance.
They use gross instead of net because its easier to make the calculation. Since most areas have very similar taxes, its a relatively consistent calculation. They could just as easily said net income, but then given you something like 40 or 50% instead of 28%.
We are currently at 15% of our gross, but will very soon be at 10% once we pay off our home equity loan (in a few months). We were at 28% while I was in school a few years ago and, though we were coverning all of our bills, it really left no room for emergency money…though my comute was costing ~$800/month which would have made a nice difference.
I am at 17% personally, but if you include my wife’s income we are at 12%. I purchased my home prior to getting married, however. I can say when I initially purchased the place 4 years ago, it was tight, I was actually just over 28% and put no money down. I was approved with PMI, a solid credit score and some limited retirement liquidity. In retrospect, it was risky and quite frankly it has been a highly questionable (actually terrible) investment considering the downturn.
Fortunately, my wife’s income has helped and my own income has increased substantially, more than doubled. But then again, we also have $150K in student loans and paid for own wedding and honeymoon, a cool $50K+. So we are pretty broke!
My mortgage is about a third of my take home (Take home=Gross minus taxes/12% for retirement/health insurance). My wife works as well, but when we bought the house I wanted to figure everything off of my income.
0% Also car 0%
Just have to pay the real estate tax and food to live.
College tuition for child number 1 - 30% however…
36.5% of take-home. Gross is goofy for me, since I get a housing and a food allowance tax-free (military). I’ve always been mystified when people are stretched thin on a similar percentage of net. We’re not big spenders, but not total cheapskates either. After the regular bills (phone, gas electric, etc) and the payday spending money, we fully fund a Roth IRA, college savings for the little one, and then blast away at debt. Credit card is paid off, and I bought a 1 y/o car last April that will be paid in about 8 more months.