Correspondent Lending

Is the 30% Home Buying Rule Still the Rule?

Two pairs of hands holding a toy home
 

Everyone has heard the rule of thumb - do not spend more than 30 percent of your gross monthly income (your income before taxes and other deductions) on housing. That way, if an individual has 70 percent or more leftover, they are more likely to have enough money for other expenses.

The problem with this logic: Renters and homeowners are having trouble sticking to this rule. According to recent data from the Bureau of Labor Statistics, the average married couple with children between ages 6 and 17 spends 32 percent of its budget on housing, and single people spend almost 36 percent.1

The 30-Percent Rule Up Close

The below chart shows what monthly housing spending would be, based on the 30% rule for different income amounts.

Yearly Income (Before Taxes) Monthly Housing Limit Annual Housing Costs
$20,000 $500 $6,000
$30,000 $750 $9,000
$40,000 $1,000 $12,000
$50,000 $1,250 $15,000
$60,000 $1,500 $18,000
$70,000 $1,750 $21,000
$80,000 $2,000 $24,000
$90,000 $2,250 $27,000
$100,000 $2,500 $30,000

 

In addition to principal and interest, there are also property taxes, private mortgage insurance, homeowners insurance and homeowners association fees, which should all be accounted for in the monthly housing limit.

Keep in mind…

The 30-percent rule ultimately depends on each individual’s financial situation. For example, if their yearly income is $500,000, they might be able to pay 40 percent for housing expenses and still have adequate money left over. But if their yearly income is $30,000, 30 percent might be pushing it.

And not everyone is comfortable spending 30 percent of their income each month on housing. After considering individual goals, priorities and other payment obligations, the 30% may not be so cut-and-dried. Buyers are coming up with their own rules these days —maybe 25 percent feels better, for example. The bottom line is while the 30-percent rule is safe, each individual has to feel comfortable and confident with what they are spending on housing

Help keep the balance

Find out how the SunTrust Correspondent Lending team can help you connect with your clients.

1 Bureau of Labor and Statistics, U.S. Department of Labor, The Economics Daily, “Married couples with oldest child under age 6 spent 36.3 percent of total expenditures on housing”, August 2017

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