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Location: Chapel Hill, NC, formerly NoVA and Phila
9,763 posts, read 15,700,579 times
Reputation: 10850
Some pitfalls of comparing mortgage/rent to take-home pay are:
1. Take home for some people is after health insurance premiums have been paid, while for others it isn't. That can make a huge difference in comparison. (401k contributions, Flex plan also can have a big effect on net)
2. How many consider their tax refund/tax payment when doing the take-home pay calculation? If my take-home pay is $5000 per month but I get a $2400 tax refund each year, then my monthly take-home is really $5200. Or if I owe about $2400 per year, my take home is really $4800.
However, no comparison is perfect as not everyone has the same living expenses, so giving as much detail as possible makes it more meaningful.
Our mortgage (PITI) is ~36% of take-home pay. It is high partially because our health, vision, and dental premiums are already taken out, as is our Flex plan and $2K per month for our 401K contribution). Also, we have a 15-year mortgage, so while it is high now, it will be for a shorter amount of time than those with 30-year mortgages.
This is for a single income household (stay at home wife + 3 kids). Like a previous poster, I don't think take home is a good indication as it doesn't include tax refund (we average $3000 a year and I already claim 9 exemptions), 10% goes into 401k, and all the other deductions (medical, dental, vision, life insurance, flex spending, etc.) that not everyone has/does.
My wife and I are at about 32% (apparently)... 4 years into a 15-year loan. You have to factor in where you live, also. My friends on the coasts hold much higher debt-to-income ratios than me.. I am in the midwest.
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