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How Much Should I Be Spending on Rent

Part Two: How Much Of My Monthly Income Should Go Toward Rent Or A Mortgage?
Posted By: Jason P. Santos


Feel like you’re paying way too much for rent/housing? You’re not alone. According to CNN Money, one in three Americans are spending too much on rent. Here’s the good news – it’s never too late to get your finances in check. And knowing how much of your income should go toward housing and other bills is an easy place to start. Whether you currently stick to a strict budget, need to tone down your monthly spending habits a little, or have completely fallen off the savings bandwagon – here are some housing expense guidelines that could really help you out.


Is Your Current Living Situation Affordable?

Landlords typically require that your monthly rent not exceed 25% of your gross monthly salary. The key word here is rent. They don’t factor in other monthly costs associated with renting, like utilities and cable/internet bills. So that 25% is just the starting point of your housing expenses. Unless you would be cool with living in the dark, shivering through those cold winter nights, or missing the season 8 premiere of Game of Thrones? --That’s what I thought. I think it’s safe to say that most of us should expect to spend an additional 5-10% of our gross income on “utilities” each month, including cell phone bills and renter’s insurance.

If the thought of covering all these expenses on your own makes you cringe, you may want to consider getting a roommate or two. The more incomes you combine, the more you can spend on rent – which means the more options you’ll have when it comes to number of bedrooms, square footage, type of housing, etc. Starting to sound like a worthy trade off? Plus, the amount you’d spend individually on a one-bedroom rental for yourself will usually come out to more than if you and a couple roommates moved into a spacious 3 to 4-bedroom house. Just weigh your options.

Not into sharing your space? You could always offer to do some maintenance, managerial tasks or cleaning around the property in exchange for a break on the rent. It never hurts to ask and might be a good way to jump-start your new and improved budget/savings plan in the meantime.


Planning for a Home Mortgage

When it comes to your mortgage, lenders should never sign off on a loan where the mortgage would consume more than 35% of the borrower’s monthly income. In fact, they typically limit mortgage payments to 28% of your monthly income. I say, use 30% as a rule of thumb.


                Try using this formula:  Multiply your monthly income by 30, then divide that by 100.

                The answer will equal 30% of your monthly income.


The United States Census Bureau states that the most recent median income recorded in the U.S. is $59,039. Let’s say this were your income – you'd be making around $4,920 per month; 30% of your monthly income would be about $1,476. That means the maximum you could spend on a mortgage would be $1,476. Keep in mind, 30% is the highest recommended portion of your monthly income you should spend on a mortgage. Paying less will put an even smaller strain on your budget.

If you’re interested in buying a home, try running a few different scenarios through our Home Affordability calculator to see if they align with your budget and financial goals.


According to Zillow’s February Real Estate Market Report, median rent across the country rose 2.8% over the past year to $1,445 per month and national home values rose 7.6% over the past year, to a median home value of $210,200. Whether you’re tightening your budget to cover your mortgage payment or scrambling to get this month’s rent check to your landlord on time – the struggle is real.

Living within your means is key.


Jason P. Santos
JPS Financial Services, Inc.