What percentage of your income should go to rent/paying off a house?
A lot of websites say it should be only 25-34 percent of your income. I was wondering if this is accurate. I want to live in manhattan after I finish school, where the cost of rent is extremely high. after finishing school I'm going to be making around $3,800 a month (before taxes). Is it unrealistic to want an apartment in manhattan that costs around $2,000 a month? Thanks for your input.
And yes I understand in other parts of the country rent is MUCH cheaper. but nyc is the only place for me.
- 10 years agoFavorite Answer
My background in the mortgage world may help with this one. Lenders usually 'allow' or 'suggest' that people spend around 28-30% of GROSS income (before taxes) on housing. In some cases, I've done loans where the number was closer to 45% of gross income spent for housing.
Having said that, there's not one 'right thing for everyone.' I admire your intention to live in NYC and your commitment to simply make it happen! It's that kind of commitment that will allow you to make it happen.
In light of that, I'll suggest some other ideas for you to help you along:
1) Commit to remaining debt free in terms of 'no credit cards or car loans! (Having no car is
probably pretty simply in NYC which is good)
2) Set aside a separate 'slush fund' or savings fund for buying your own house. As you amass
a down payment over time, you can use that to buy your own pad if you so choose.
3) Determine some additional ways of increasing your income beyond your job. This could take
the form of finding a product or service to market or sell part time for additional savings.
4) In the future, if you could find a good deal on a duplex or some type of real estate where you
have other rental income, this is a good way to have other people offsetting your housing
expense. In NYC, I would guess that the FHA mortgage limit is probably upwards of
$500,000 for a 2 or 3 unit property. You could always keep an eye out for a good deal.
Just prepare yourself with good down payment money and good credit so if the
opportunity arises you're ready. Just an example: If you could find a duplex for $400K*
your total monthly obligation may only be around $2800 (after about $20K for down
payment & some closing costs). Rent from the other side would be at least $2000 which
means your half would only run $800. (*Of course, you'd have to look hard for a $400K
duplex..but if you're committed......something would happen over time!)
Anyhow, the long & short....be smart with money by not getting debt & save money for your down payment so you can lower your monthly outlay.
Hope there was something helpful for you there!
ESource(s): 16 years of owning a mortgage & financial counseling business & Starting a financial independence & education community
- 4 years ago
In the class we learned that 25% or one weeks wages. then we had to look for jobs we were training for and what was the wages we would earn. Then we looked up rentals: What could we rent or buy for that much money. With cars, the same! How much car could we buy with one weeks wages> that was interesting. Then there was car insurance, tires, gas and parking. You can afford more rent in the city where you don't need transportation.
- Diane ALv 710 years ago
Your after tax amount is going to be much less. Paying a 2K rental would but you in financially extremely tight; plus other things such as transportation, food, health, etc expenses... 1/3rd of income to rent is based upon some sound data.
- 10 years ago
yes are right