The housing crisis of 2008 is still fresh in many minds, though low interest rates and the economic recovery have made home-buyers cautiously optimistic and more willing to buy, especially in areas with strong economic growth. We all need a roof over our heads, so the question is, how much should we be paying for our home sweet home, be it in rent or a mortgage payment?
NerdWallet surveyed 100 financial advisors to hear what they had to say. The results are clear: 100% of financial advisors advocate spending less than 30% of your income on housing costs. 32% of the group were even more conservative, saying folks should be spending less than 20% of their income on housing.
Advisors had plenty to say about how to think about housing. We are often won over after an open house, or captivated by the American Dream of homeownership.
“Buying a house has always been the American Dream, but if you can’t afford it, put the money away in a 401(k) and rent. If you can afford to buy, rent for awhile in the area where you want to live. Make sure it’s the right place for you. It’s far easier to buy than sell.” – Guy Baker, CFP® (Irvine, CA)
People often forget the total cost implications of their housing decision.
“Balance housing costs against transportation costs, especially in urban areas. Paying less for rent or a mortgage may put you in a less-convenient location, and you may end up spending the difference in transportation costs. – Judy McNary, CFP ® (Broomfield, CO)
And of course, with the housing crisis fresh in our memories,
“Don’t consider your home an investment. It’s a place to live, not make money” – Michael Keeler, CFP ® (Las Vegas, NV)
What do you think? Are you spending within your means? Is this a reasonable guideline, particularly in high-cost locales like New York City and the San Francisco Bay Area? We welcome your comments below.
NOTE: Income refers to after-tax income