Is Spending 40% of My Take Home on a Mortgage Too Much? Here’s What I Learned

A Reddit user is worried about potentially being in over his head when it comes to his housing payment.  He and his wife are preparing to purchase their first property and are thinking about getting a home that would require them to spend around 40% of their take-home pay on their mortgage costs.

The original poster (OP) wants to know if that’s going to be a financial problem for them — and plenty of other Reddit users weighed in with some helpful advice.

Here’s what the OP had to say, some advice from other commenters, and also some details on deciding how much of your income can, and should, be devoted to your housing costs. 

A Reddit poster is making a big commitment when it comes to his mortgage

The Reddit user explained his situation in some detail, indicating that he and his wife are normally very cautious about their finances. They are currently renting a home and saving between 35% and 40% of their income.

However, they’re about to buy a house, and their monthly payments are going to increase to 40% of their pay once they have closed on the home.

He thinks that they may be OK because they are frugal in other areas and could probably still save 20% of what they’re bringing in after they buy the house, with that money, at least in part, going to general saving and not specifically to retirement accounts since they are already contributing 15% of their pay (each) to their 401(k). 

Is 40% of your pay too much to purchase a house?

In general, spending 40% of your pay when buying a house is too much. Most finance experts recommend limiting spending to 25% to 30%. However, the OP does not have other debt, which people often do, so this can give him a little more wiggle room to devote more of his money towards his home.

He also didn’t disclose what his income is, but many Reddit posters pointed out that this matters a lot. After all, if you have a $2,000 monthly income and spend 40% of your pay on your house, you’re only left with $1,200 for everything else. But if you have a $10,000 monthly income and you spend 40% of it on a house, you still have $6K left. Most people can make their budget work on $6K — although not everyone — but living on $1,200 would be a real challenge even for the most frugal. 

Reddit posters also cautioned that he should think about his future and whether that 40% will be sustainable over the long haul, especially if he has kids and the household experiences an income cut if one parent stays home or is suddenly stuck with the high cost of childcare. 

These posters are right in that he needs to be concerned about the commitment he is making and how much of his salary the house will eat up — especially if costly lifestyle changes are on the horizon. The best thing the OP can do is to make a detailed budget and do a “practice run” to see if it works. This would involve paying the difference between his current rent and the home he wants to buy into a high-yield savings account for a few months to see if he really can make the payment and live comfortably on what’s left.

If the OP makes a budget that shows he can cover housing and all other expenses, and if he tries that out for a while and finds out he has plenty of money left over, then he is probably Ok with the choice to commit 40%. He does need to be aware that this could limit his future options, though, and if he wants more flexibility — or is planning to add children — he may want to think twice about such a big payment.

The poster should also strongly consider talking to a financial advisor to get personalized advice. While the rule that you should limit housing costs to 25% is a good one in some cases, it is also a generic rule. The OP can get advice specific to his situation from a financial advisor so he can make the choice that’s best for his finances over the long term.

The post Is Spending 40% of My Take Home on a Mortgage Too Much? Here’s What I Learned appeared first on 24/7 Wall St..