What Percentage of Income Should Go to Housing? (Rules vs. Reality)
You’ve probably heard that you should spend no more than 30% of your income on housing. But in today’s housing market, that advice often feels unrealistic - or worse, misleading.
In this guide, we’ll break down the traditional housing affordability rules, explain why they don’t always reflect real life, and show you a more practical way to decide how much housing you can actually afford - without becoming house poor.
Traditional Rules of Thumb for Housing Costs
The 30% Rule
The most common guideline says housing should cost no more than 30% of your gross income. This rule originated from government housing standards - not from modern personal finance planning.
The biggest issue? It uses gross income and ignores taxes, debt, childcare, and lifestyle costs.
The 28/36 Lender Rule
Mortgage lenders often use the 28/36 rule. Housing expenses should stay under 28% of gross income, while total debt should stay under 36%.
These ratios protect lenders from default risk - they are not designed to ensure your personal comfort or financial flexibility.
Why These Housing Rules Don’t Match Real Life
- Gross income isn’t spendable income.
- Housing costs include more than a mortgage.
- Taxes, insurance, and maintenance change over time.
- Student loans and childcare distort ratios.
- Regional cost differences are massive.
A household spending 30% on housing in a low-cost market may feel comfortable, while the same percentage in a high-cost area can feel suffocating.
A More Realistic Way to Think About Housing Affordability
A better approach starts with your take-home pay and works backward. Instead of asking, “What will the bank approve?” ask:
- Can I still save consistently?
- Can I handle repairs without debt?
- Can I absorb rising taxes or insurance?
- Will I feel trapped by my payment?
Stress-testing your budget often reveals that a lower housing percentage leads to greater long-term stability.
Lender Affordability vs. Personal Affordability
Lenders evaluate risk. You live with the payment.
It’s common for buyers to be approved at ratios that leave little room for emergencies, savings, or lifestyle flexibility.
That’s why personal affordability often sits well below lender approval limits - especially for first-time buyers.
So What Percentage of Income "Should" Go to Housing?
There’s no universal number, but many financially stable households land somewhere between:
- 20–25% for maximum flexibility
- 25–30% for balanced affordability
- 30–35% with strong income stability and low debt
Anything above that increases financial risk unless income growth or a near-term refinance is likely.
Use Calculators Instead of Guessing
Rules of thumb are shortcuts. Calculators let you model reality.
Housing Percentage FAQs
Is 30% of income too much for housing?
It can be, especially when based on gross income. Net income and lifestyle costs matter more.
Why do lenders approve payments that feel unaffordable?
Lenders focus on default risk, not quality of life or savings goals.
Should housing be based on net income?
For personal budgeting, yes. Net income reflects what you actually have to spend.
Find Your Real Housing Comfort Zone
Stop relying on rules of thumb. Run real numbers and see what fits your life - not just lender math.