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Forget rules of thumb. Build yourself a budget and take a long hard look at it and decide what you can afford. I know people who make good money with cheap housing but have almost nothing left over cause they spend it all on dumb stuff. I know other people who spend almost 30% of their monthly income on housing but have plenty of money left over because they are frugal. At the end of the day the only numbers that matter are your numbers.
Personally our household income is just above $150k and our monthly housing is just under 22% of income. Its totally comfortable for us, we have plenty left over each month for investing and fun. Only making $50k thought I would want to keep my monthly housing costs below 20% of income tops. Keep in mind a loaf of bread and gallon of gas costs the same for everyone, so going off "rule of thumbs" and "%s of income" don't really make sense. I could make $1,000,000 a year and spend 90% of it on housing and still have more money left over than you..
That is totally not enough information to answer the question.
Many things figure into it:
How much are you putting down?
How stable is your job?
Is that one income or 2?
How much do you have in emergency savings?
How much debt do you have?
Personally, I wouldn't recommend someone buy something that they couldn't afford to keep if one earning member of the household (you if you are the only earner, you or a spouse if you are married) loses their job for a year. And I wouldn't recommend someone buy something that leaves them unable to save.
If you have no other debt, no kids and no plans to have kids, and that is 2 stable incomes, and emergency savings on top of your down payment, I would go no higher than $150k (loan value, so add on whatever you are putting down to get your purchase price).
If you have debt, no emergency savings, if you have kids OR (not and) if that is just one income, I would aim even lower. personally, on a $50k/year income, if any of the above are true, I wouldn't go above $100k loan value.
I've always thought the 3.5x rule was too high. Hubby and I make about $65k, have no kids, are frugal, and our loan value was $108k (so about 1.6x our income). The first few years were still tough, because we had other debt. And when hubby got laid off with no unemployment benefits for a full year, we got by, but only just. If we had bought a house at 3.5x our income, we would have lost it that year, and even if we hadn't, we would have no money in savings or retirement today (10 years later). 3.5x is ok if you are 100% ready in every other way (no debt, great emergency savings, 2 extremely stable jobs, at least 20% down, etc), but in mind, it is too high if any factor isn't 100% perfect.
I agree. Our household income is around 125k and we do not like to go above 200k for a home.
it depends where you live too. In Florida your homeowners insurance will be really high so that will add to your mortgage cost, it can add $300 or more a month.
In the northeast where property taxes are very high that will also add to your mortgage costs, and it will easily cost you $600 or more monthly in property taxes for that $200K house.
So location matters too. You want a place that does not have high property insurance or high taxes or high heating costs.
Correct. If you have kids and debt or live in a high property tax area...
target far lower than 2.5:1
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