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Making Room for Housing in Your Budget

April 17, 2024

Whether you’re renting or looking to buy a home, these tips can help you budget SMART.

When it comes to budgeting and managing your finances, among the biggest expenses you’ll have is housing. Whether you rent or own, figuring out how much of your income should go toward housing can be a challenge. But having a solid understanding of this can help you make informed decisions about your housing situation and ensure that you’re spending your money in a way that works for you. We’ll look at two simple rules to help you determine how much of your income should go toward housing and what to consider when making a budget.

The 30% Rule

The 30% rule is a way to determine how much of your income should go toward housing expenses. According to this rule, you should aim to spend no more than 30% of your gross income on housing-related expenses. 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.

The 30% rule is based on the idea that housing should be a manageable portion of your budget and not an overwhelming expense. By limiting your housing expenses to 30% of your income, you can ensure that you have enough money left over for other essential expenses, such as food, transportation, and healthcare, as well as for entertainment, eating at restaurants, and other discretionary spending.

Let’s look at an example of how the 30% rule works:

If your gross monthly income is $5,000, you can spend $1,500 on housing. If your rent is $1,000 per month, and your utility bills average $200 per month, your costs are 24%, so your budget would be in good shape.

It’s important to note that the 30% rule is just a guideline and may not be feasible for everyone. Factors such as your location will impact the amount you can afford to spend on housing. If the cost of housing in your area is more than 30% of your income, you may need to consider alternative housing options, such as sharing a home with roommates or moving to a more affordable area.

Additionally, the 30% rule should be adjusted based on your current financial situation and future plans. If you have high levels of debt or are saving for a big expense, such as a down payment on a home that you will purchase, you might need to spend less than 30% of your income on housing to reach your financial goals.

The 28/36 Rule

If you’re looking to buy a new home and qualify for a mortgage, try the 28/36 rule. The 28/36 rule is a simple and effective way to ensure that you’re living within your means and not overextending yourself financially.

Here’s how the 28/36 rule works:

  • No more than 28% of your gross monthly income should be spent on housing expenses, including rent or mortgage payments, property taxes, insurance, and any other housing-related costs, except utilities.
  • No more than 36% of your gross income should be spent on total debt –– and that includes your mortgage principal and interest, property taxes, homeowners insurance, and any homeowners association fees, plus car loans, student loans, credit card debt, and anything else you owe.

The 28/36 rule provides a clear guideline for how much you should spend on housing expenses and other debts and helps ensure you’re not spending more than you can afford. If you stick to the 28/36 rule, you’ll be able to live comfortably without sacrificing your long-term financial goals.

Here’s an example:

  • Gross monthly income: $5,000
  • Maximum housing costs: 28% of $5,000 = $1,400
  • Maximum debt payments: 36% of $5,000 = $1,800

In this example, the household shouldn’t spend more than $1,400 on housing costs and no more than $1,800 on all debt payments each month. By sticking to this rule, the household can maintain a healthy balance between income and expenses and avoid overextending themselves financially.

It’s important to remember that the 28/36 rule is just a guideline, and you may need to adjust it based on your unique financial situation. For example, if you have a high income, you may be able to afford a higher housing expense or debt-to-income ratio. On the other hand, if you have a lower income or high recurring debts, you may need to allocate less of your income toward housing expenses.

Both the 30% rule and the 28/36 rule can help you budget smart and explore your options. When you’re ready for the next big step – like qualifying for a mortgage – contact us at We’ll connect you with one of our Mortgage Experts to provide you with personalized service and answer any questions you may have.