What percentage of income is too high to pay for house totals?
September 11, 2023 3:05 AM Subscribe
My partner was horrified to hear how much I pay to keep my house going. It occurred to me I don't know what's normal these days. What do you think is reasonable? What percentage of your income is spent on just the stuff to keep your home running? #metafilterfundraiser2023
For a starter, I pay about 2/3 of my income on mortgage, taxes, and regular utilities. It didn't seem outrageous to me, but now I'm starting to second guess myself. (They're thinking I might need to downsize and get a smaller house so this isn't breaking my back). Thoughts on any and all of the above?
For a starter, I pay about 2/3 of my income on mortgage, taxes, and regular utilities. It didn't seem outrageous to me, but now I'm starting to second guess myself. (They're thinking I might need to downsize and get a smaller house so this isn't breaking my back). Thoughts on any and all of the above?
I'm assuming your 2/3rds is 2/3rds of your take-home pay, not 2/3s of your gross income. The official guideline (among US housing programs, at least) is paying 30% of your gross income on basic housing costs (rent or mortgage plus taxes and insurance). And 30% of gross could be anywhere from 30% to 50% of net income depending on how much one pays in income tax. So, yeah, your housing expenses are high but not wildly outside the norm since you're including water, electricity and heating in your number.
I think Katie's question about what you have left after paying your housing expenses is a good one. And whether or not you could get housing that meets your needs in your area for less - if you think you can, I would certainly explore that if I were in your shoes. But, there are lots of places now where that's just not a possibility and a ton of people are spending 50% or more of their incomes on housing.
posted by snaw at 3:37 AM on September 11, 2023 [4 favorites]
I think Katie's question about what you have left after paying your housing expenses is a good one. And whether or not you could get housing that meets your needs in your area for less - if you think you can, I would certainly explore that if I were in your shoes. But, there are lots of places now where that's just not a possibility and a ton of people are spending 50% or more of their incomes on housing.
posted by snaw at 3:37 AM on September 11, 2023 [4 favorites]
The problem with a lot of the "rules of thumb" when it comes to budgeting is that many of them are "one size fits some". And there are a lot of different rules of thumb like this - one very common one here in NYC is that "your monthly rent should be 1/40 of your annual income", to the point that landlords are now requiring you can prove that on new lease applications.
But everyone's different - for instance, I couldn't make that myself if I had to take over this apartment, but if you look at my personal budget I could TOTALLY make it work; such a rule of thumb also assumes I am paying for a car, credit card debt, and school savings for my kids, and I have none of those things. You very well may have made similar choices which balance your own budget, and so 2/3 of your income on mortgage, taxes, and utilities is dealable.
That said - it is a bit on the high side, and may not be sustainable in the long term. One budget rule that's making the rounds these days is Sen. Elizabeth Warren's 50/30/20 budget rule - where your after-tax income is split up with 50% of it going to things you need, 30% going to stuff you just want, and 20% going to savings. "Stuff you need" is defined as the bills that you absolutely must pay and the stuff you absolutely must have - housing, food, utilities, health care and car/transport payments. And "Stuff you want" would be everything else, or would be upgrades on some of the needs - movies, books, the cable package with extra frills.
Again, this is how you would split up after-tax income. And I notice that you're counting taxes in your budget above. Are you counting this against your pre-tax income, or your take-home income? How does the take-home income break down?
posted by EmpressCallipygos at 3:45 AM on September 11, 2023 [3 favorites]
But everyone's different - for instance, I couldn't make that myself if I had to take over this apartment, but if you look at my personal budget I could TOTALLY make it work; such a rule of thumb also assumes I am paying for a car, credit card debt, and school savings for my kids, and I have none of those things. You very well may have made similar choices which balance your own budget, and so 2/3 of your income on mortgage, taxes, and utilities is dealable.
That said - it is a bit on the high side, and may not be sustainable in the long term. One budget rule that's making the rounds these days is Sen. Elizabeth Warren's 50/30/20 budget rule - where your after-tax income is split up with 50% of it going to things you need, 30% going to stuff you just want, and 20% going to savings. "Stuff you need" is defined as the bills that you absolutely must pay and the stuff you absolutely must have - housing, food, utilities, health care and car/transport payments. And "Stuff you want" would be everything else, or would be upgrades on some of the needs - movies, books, the cable package with extra frills.
Again, this is how you would split up after-tax income. And I notice that you're counting taxes in your budget above. Are you counting this against your pre-tax income, or your take-home income? How does the take-home income break down?
posted by EmpressCallipygos at 3:45 AM on September 11, 2023 [3 favorites]
Nthing what everybody says about what is left and how is your quality of life as a result.
Beyond that, I am torn on this. On the one hand, you are paying a mortgage, not rent. So you are building up equity in your home and are able to participate in price increases (of course also decreases).
But home ownership comes with regular maintenance and unexpected maintenance. You know every so many years you'll need to replace the roof or the boiler or whatever it may be. You know the boiler can also just break outside the replacement cycle. Can you afford to pay for these regular and ad hoc items when they need to happen?
posted by koahiatamadl at 3:49 AM on September 11, 2023
Beyond that, I am torn on this. On the one hand, you are paying a mortgage, not rent. So you are building up equity in your home and are able to participate in price increases (of course also decreases).
But home ownership comes with regular maintenance and unexpected maintenance. You know every so many years you'll need to replace the roof or the boiler or whatever it may be. You know the boiler can also just break outside the replacement cycle. Can you afford to pay for these regular and ad hoc items when they need to happen?
posted by koahiatamadl at 3:49 AM on September 11, 2023
Response by poster: Sorry, to clarify: I have a fixed pension from previous employment, and the 2/3 is take-home from that. So 2/3 of my fixed income is on fixed expenses. I also have some seasonal and kind of gig work/self employment income on top of that, but it's really unpredictable and the taxes are weird which is why I don't like to count it in budgeting. If averaged it would probably give about a 15-20% bump to take-home each month. I'm hoping to find more regular employment within the next couple of years, which is the other reason I'm hesitant to mess around with major property changes.
posted by sockmeamadeus at 4:59 AM on September 11, 2023 [2 favorites]
posted by sockmeamadeus at 4:59 AM on September 11, 2023 [2 favorites]
That much of my income going toward housing would make me personally very uncomfortable, but I err on the far opposite side of that, with about 21% of my household's take home pay going to mortgage+escrow (taxes, PMI, insurance) and utilities. It was probably closer to 30% when we purchased the house, but my partner's earnings have increased since then.
We also own a 100+ year old bungalow, so having that buffer has been really critical to being able to afford major, expensive maintenance and repair projects without having to resort to debt or financing. If I add in the average spent on these projects per year, we are at about 32% of our take home pay. A newer home might not need ~$15k in deferred maintenance and repairs per year like ours has, but you could need some, and hopefully your situation allows for that. Our most recent and largest expense had nothing to do with the age of the house, when an historic rain caused the city's combined storm/sanitary sewer system to back up into our (and everyone else's) basement.
posted by misskaz at 5:06 AM on September 11, 2023 [1 favorite]
We also own a 100+ year old bungalow, so having that buffer has been really critical to being able to afford major, expensive maintenance and repair projects without having to resort to debt or financing. If I add in the average spent on these projects per year, we are at about 32% of our take home pay. A newer home might not need ~$15k in deferred maintenance and repairs per year like ours has, but you could need some, and hopefully your situation allows for that. Our most recent and largest expense had nothing to do with the age of the house, when an historic rain caused the city's combined storm/sanitary sewer system to back up into our (and everyone else's) basement.
posted by misskaz at 5:06 AM on September 11, 2023 [1 favorite]
I also have some seasonal and kind of gig work/self employment income on top of that, but it's really unpredictable and the taxes are weird which is why I don't like to count it in budgeting.
Ah, that changes things.
Even though I know it's unpredictable, I think it's a mistake not to count it in budgeting, at least when you're at the "how much should I spend on fixed expenses" part. Don't budget as if you're always going to be getting the primo-month level of income from that, however, but that IS a source of income that should at least be taken into account when you're figuring out "am I allocating too much of my income to housing" or whatever.
I have a couple similarly oddball things in my own budget - my roommate and I split the rent and the utilities, and the utilities vary each month; the utilities are all in his name, and the lease is in both our names and I cut the check. He reimburses me a lump sum based on his share of the rent minus my share of the utilities - and because the utility amounts are unpredictable, that's a bit different month to month. When I was preparing my budget, I looked back on like six months' worth of what he paid me for his share, and I found the average amount and that is what I accounted for in my budget. I suggest doing the same - see what your income was from the freelance stuff for the past several months, find an average of that and use that as your "income".
posted by EmpressCallipygos at 5:16 AM on September 11, 2023
Ah, that changes things.
Even though I know it's unpredictable, I think it's a mistake not to count it in budgeting, at least when you're at the "how much should I spend on fixed expenses" part. Don't budget as if you're always going to be getting the primo-month level of income from that, however, but that IS a source of income that should at least be taken into account when you're figuring out "am I allocating too much of my income to housing" or whatever.
I have a couple similarly oddball things in my own budget - my roommate and I split the rent and the utilities, and the utilities vary each month; the utilities are all in his name, and the lease is in both our names and I cut the check. He reimburses me a lump sum based on his share of the rent minus my share of the utilities - and because the utility amounts are unpredictable, that's a bit different month to month. When I was preparing my budget, I looked back on like six months' worth of what he paid me for his share, and I found the average amount and that is what I accounted for in my budget. I suggest doing the same - see what your income was from the freelance stuff for the past several months, find an average of that and use that as your "income".
posted by EmpressCallipygos at 5:16 AM on September 11, 2023
The fixed income makes it a bit less risky, because you don't have to worry about losing all your income suddenly, like someone with 100% of their income from employment would.
A partly lumpy income can actually be great for home ownership, so long as it's consistent in the long term. That's because with a lot of necessary home maintenance you can choose when to do it, within reason, and you can defer it temporarily if you're having a dry spell. Of course you're more likely to be able to choose your timing if you're keeping on top of "preventative maintenance" like getting your heating system serviced and your gutters cleaned out.
So really there's two things to think about:
1. Whether you're able to maintain enough savings to cover whatever emergency expenses are realistically likely to pop up.
2. Whether your current quality of life is sustainable in the medium term. For example, if you're doing a lot of maintenance and yard work yourself but you're struggling to keep that up, or if you're actively avoiding important home maintenance expenses because you can't afford it, or if you're losing your circle of friends due to not being able to afford to go out.
posted by quacks like a duck at 5:24 AM on September 11, 2023 [4 favorites]
A partly lumpy income can actually be great for home ownership, so long as it's consistent in the long term. That's because with a lot of necessary home maintenance you can choose when to do it, within reason, and you can defer it temporarily if you're having a dry spell. Of course you're more likely to be able to choose your timing if you're keeping on top of "preventative maintenance" like getting your heating system serviced and your gutters cleaned out.
So really there's two things to think about:
1. Whether you're able to maintain enough savings to cover whatever emergency expenses are realistically likely to pop up.
2. Whether your current quality of life is sustainable in the medium term. For example, if you're doing a lot of maintenance and yard work yourself but you're struggling to keep that up, or if you're actively avoiding important home maintenance expenses because you can't afford it, or if you're losing your circle of friends due to not being able to afford to go out.
posted by quacks like a duck at 5:24 AM on September 11, 2023 [4 favorites]
I also have some seasonal and kind of gig work/self employment income on top of that, but it's really unpredictable and the taxes are weird which is why I don't like to count it in budgeting.
Even if you aren't counting it in your budgeting, having this extra income is why you are not feeling pinched at your current expenses. The question would be, how stable is that extra income? What happens if it tapers off at some point?
posted by Dip Flash at 6:26 AM on September 11, 2023
Even if you aren't counting it in your budgeting, having this extra income is why you are not feeling pinched at your current expenses. The question would be, how stable is that extra income? What happens if it tapers off at some point?
posted by Dip Flash at 6:26 AM on September 11, 2023
Yes, it's higher than the rule of thumb, and many people would be uncomfortable with that situation, but rules of thumb are only guidelines. Personal details like your bonus income and the stability of your fixed income and especially your other expenses all make a difference. If you have no important ongoing or potential expenses (loan repayment, supporting family members, house maintenance, etc) and don't spend much for fun (vacations, shopping, restaurants, drinking/drugs, etc) then maybe you can afford to spend that "extra" on housing instead. It all depends what your priorities are.
The biggest issue is that unlike those other things, housing can't be put on hold if you have big expenses (or loss of income) suddenly pop up, so you have a lot less wiggle room for error, and so your income stability and savings become much more important.
The other thing is, you don't say, but spending 2/3 of a very high income is far different from spending 2/3 of a very low income (which many low-income people are forced to do because affordable housing doesn't exist everywhere, but the option for downsizing, and owning a house in the first place, suggests that you're at least in the median range if not higher). The higher your income is, the more extra money you'll have left over after paying basic survival costs, and again that extra might be funnelled into housing if that's what you prioritize.
All that to say, I'd be aware of the guidelines, but still pay more attention to your personal budget and how much you're saving in reality each month. If you start to become uncomfortable with the numbers, you can always downsize then, but I definitely wouldn't sell your house purely because you're breaking the rule of thumb.
posted by randomnity at 6:46 AM on September 11, 2023 [1 favorite]
The biggest issue is that unlike those other things, housing can't be put on hold if you have big expenses (or loss of income) suddenly pop up, so you have a lot less wiggle room for error, and so your income stability and savings become much more important.
The other thing is, you don't say, but spending 2/3 of a very high income is far different from spending 2/3 of a very low income (which many low-income people are forced to do because affordable housing doesn't exist everywhere, but the option for downsizing, and owning a house in the first place, suggests that you're at least in the median range if not higher). The higher your income is, the more extra money you'll have left over after paying basic survival costs, and again that extra might be funnelled into housing if that's what you prioritize.
All that to say, I'd be aware of the guidelines, but still pay more attention to your personal budget and how much you're saving in reality each month. If you start to become uncomfortable with the numbers, you can always downsize then, but I definitely wouldn't sell your house purely because you're breaking the rule of thumb.
posted by randomnity at 6:46 AM on September 11, 2023 [1 favorite]
The other thing to consider is what your options actually are. I pay about the same proportion of income to mortgage + utilities, and it’s a bit tight and I’ve looked at options. Mortgage interest rates are over twice what they were when I bought, so even with equity, a smaller place is going to be more expensive month to month, besides the large transactional fees for selling. An apartment would be cheaper, but I bought partly for rent control, my property assessment for taxes can legally only go up a small percent per year.
I also have the option of renting a room if I need to use it in the future, is that something that appeals? Is your partner using this conversation as a way to work up to moving in with you? I think it’s important to look at the situation more holistically vs. meeting an arbitrary template.
posted by momus_window at 6:47 AM on September 11, 2023 [2 favorites]
I also have the option of renting a room if I need to use it in the future, is that something that appeals? Is your partner using this conversation as a way to work up to moving in with you? I think it’s important to look at the situation more holistically vs. meeting an arbitrary template.
posted by momus_window at 6:47 AM on September 11, 2023 [2 favorites]
I agree with quacks like a duck - you being on a pension makes a huge difference. Right now I am in my highest-earning years (probably) and I am saving a lot for retirement, and my home expenses (including utilities) are around 30% of my after-tax income (not including some medium-to-big jobs that are coming up on the horizon - siding, new hot water heater). My home expenses are like 60-70% of my overall spending, though, and if I weren't saving for retirement I would need a lot less income.
In addition to quacks like a duck's excellent points to think about, I would add:
4) how much longer do you have on your mortgage?
5) about how long do you expect to be in this house and/or be alive?
6) is your pension income keeping up with inflation (for taxes, repairs, etc.)?
posted by mskyle at 7:00 AM on September 11, 2023 [1 favorite]
In addition to quacks like a duck's excellent points to think about, I would add:
4) how much longer do you have on your mortgage?
5) about how long do you expect to be in this house and/or be alive?
6) is your pension income keeping up with inflation (for taxes, repairs, etc.)?
posted by mskyle at 7:00 AM on September 11, 2023 [1 favorite]
Currently you could “downsize” and end up paying more. So many Americans are in your exact position. Unless he has a concrete actual cheaper house (with all expenses accounted for) then this is just faff.
posted by Bottlecap at 10:37 AM on September 11, 2023 [3 favorites]
posted by Bottlecap at 10:37 AM on September 11, 2023 [3 favorites]
Can you even find a housing option that is "more affordable" than your current situation? Between the current interest rates, limited housing stock, and the upfront expenses of moving... you may not be in ideal place budget wise, but you may not have significantly better options.
posted by oceano at 12:30 PM on September 11, 2023 [1 favorite]
posted by oceano at 12:30 PM on September 11, 2023 [1 favorite]
I live in an area with an incredibly high cost of living so this is not unusual. Perhaps it’s not ideal but it’s working for you right now. You can always take on a roommate or what not! I agree with those above who said your partner should butt out. I had an ex who was so uncomfortable that I had a house while she didn’t that she actually pressured me to move out so we’d seem more equal. Of course, she presented it as a logical argument so I didn’t question her intentions but I should have! This was a crazy scenario but a genuine example of how sometimes people make these comments out of ignorance or bad intentions! I don’t judge people for not owning a house or having roommates or what not — I’m currently a renter and will be for a long time — but it’s unfortunate what people will say out of insecurity. We question ourselves, which can be healthy or, unfortunately, gaslighting.
posted by smorgasbord at 2:18 PM on September 11, 2023
posted by smorgasbord at 2:18 PM on September 11, 2023
Firstly, you should definitely count your other income in your calculations - even though it's uneven, averaging it over a year will be pretty accurate. If you count that income, you're likely to be more around 50% of income in fixed costs. That's still high by the general 'rule of thumb' estimates, but those are also put together by people with no understanding of how life works for real people. Given the high security of your primary income, I would be more worried about paying (eg) 30% of income on fixed costs but being reliant on an income that could be taken away with the stroke of a pen. Living with 50% of a guaranteed income on fixed costs sounds fine to me - that's about where I am.
If you're thinking that selling your house and buying a cheaper one will change your life, don't forget to factor in the costs of doing that. How many years will it take before you actually get any benefit when you consider the tens of thousands in turnover costs? Longer term, you'd also be losing out on the capital gains of a higher-value property.
posted by dg at 3:53 PM on September 11, 2023
If you're thinking that selling your house and buying a cheaper one will change your life, don't forget to factor in the costs of doing that. How many years will it take before you actually get any benefit when you consider the tens of thousands in turnover costs? Longer term, you'd also be losing out on the capital gains of a higher-value property.
posted by dg at 3:53 PM on September 11, 2023
Interest rates are the big issue if you were to consider a change. With current rates, you could end up paying more monthly even if you were to get a cheaper home, depending on the amount of the loan. (This has led to a weird situation in the US, where new homes are selling well but many people are opting not to sell their existing homes, because they would have to get another place to live and interest rates are so high right now that moving is not a good option for most.)
posted by azpenguin at 7:12 AM on September 12, 2023
posted by azpenguin at 7:12 AM on September 12, 2023
This thread is closed to new comments.
I think the bigger questions might be: do you have enough left over each month to contribute to a solid emergency fund? Are you able to save 10-15% towards retirement? Do you have enough to do other things that help you enjoy life according to your dreams and preferences - travel, live music, eating out, hobbies? If your answer to a lot of these questions is no, then perhaps you need to look into more affordable housing options.
posted by katie at 3:21 AM on September 11, 2023 [10 favorites]