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2: Size Up Your Housing Situation

Rent and Mortgage Guidelines

Housing loan approved calculator wallet

As a general guideline, it is recommended that you keep your rent (rent burden) or mortgage payment below 30 percent of your gross (pretax) annual income.

This is just a guideline, and your situation is unique. Even if you currently spend more than 30 percent of your income on housing and have no difficulty paying off debts or meeting other obligations, you still might explore lowering your housing costs for other reasons — such as paying off your debts faster or saving more money for emergencies, retirement and investments. Once your current needs are met, it’s time to think about the needs of the “future you.”

Mortgage Lender Guidelines

When you apply for a home loan, lenders look for your housing costs (principal, interest, property taxes and homeowners insurance — or PITI) to be around 28 percent of your gross income, lower than the 30 percent guideline. The other common industry standard is for your debt-to-income ratio (i.e., PITI plus consumer debts) to be no more than 36 percent. Use the Housing Costs Worksheet to see how you stack up to these guidelines.

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