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SammyTiger
LSU Fan
New Orleans, LA
Member since Feb 2009
35408 posts
 Online 

The 28 Percent Rule
Is this sound advice when determining how much to spend on a house note?

Wife just got a significant raise, and were think of moving in the next year or so.


LSUsmartass
Pittsburgh Fan
Scompton
Member since Sep 2004
80000 posts

re: The 28 Percent Rule
Which service does this stream on? Will watch later


SammyTiger
LSU Fan
New Orleans, LA
Member since Feb 2009
35408 posts
 Online 

re: The 28 Percent Rule
I requested A move. lol



LSUsmartass
Pittsburgh Fan
Scompton
Member since Sep 2004
80000 posts

re: The 28 Percent Rule
Sorry, couldn't resist


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Jor Jor The Dinosaur
LSU Fan
Philadelphia, PA
Member since Nov 2014
1618 posts

re: The 28 Percent Rule
This is the MTV Board. You gonna be on Fixer Upper or House Hunters?


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30
SouthOfSouth
LSU Fan
Baton Rouge
Member since Jun 2008
43160 posts

re: The 28 Percent Rule
There's a lot of other variables that should probably be taken into account.

Do you have other debts? Student loans? Car notes?

Do you have kids? Private school? daycare?

I currently pay about 30% of my after tax take home on my house but both of our vehicles are paid off and we have no student debt or other loans.

There are a lot of variables but 28% is a very realistic spot for you to be in if you aren't bogged down with a lot of other debts.


Dock Holiday
Member since Sep 2015
934 posts

re: The 28 Percent Rule
I'm at around 17% of take home, but was higher when we first built. If you have a 20 or 30 year loan the % you pay now will be higher initially than it is at the end of the term of the loan. This of course assumes you get cost of living raises or raises in general as you progress through your career(s). I'm 2/3 through my loan term and have refinanced twice to get lower rates.
We now have kids in private school, no vehicle notes, but will have one kid driving in the near future, which adds significant additional expense.

As the house note becomes less of a % of our take home, other expenses fill in, and by the time our youngest can drive, our home will be paid off for a couple years.

Having been through this exercise years ago, I can say anything above 25% of take home can get uncomfortable if you are investment minded, i.e. contributing as you should to retirement. It leaves you less play/security/disposable money.


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LSUDbrous90
LSU Fan
Lafayette
Member since Dec 2011
971 posts

re: The 28 Percent Rule
Think the general rule is 28/36 in that no more than 28% of gross income go towards house and 36% go towards all debts. I just went through this a few months ago and 28% still seemed like a ridiculous amount of house for me and my wifes age and current income but we have 0 debt elsewhere. I would try to stay well below those numbers but that is generally accepted everywhere. We ended up with or monthly note of 18% and feel good about it.


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lynxcat
Rutgers Fan
Member since Jan 2008
20355 posts

re: The 28 Percent Rule
Percentages are useless. All that matters is the disposable income you will have remaining after the mortgage and other commitments.


castorinho
Oklahoma Fan
13623 posts
Member since Nov 2010
59607 posts

re: The 28 Percent Rule
How about you just do some math and figure what you can afford after savings and expenses based on your own lifestyle


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20
SippyCup
New Orleans Saints Fan
Member since Sep 2008
3084 posts
 Online 

re: The 28 Percent Rule
quote:

Percentages are useless. All that matters is the disposable income you will have remaining after the mortgage and other commitments.


Exactly.

I see clients with mortgages less than 10% of their net and they still are late on payments because they have so much other debt and/or bad spending habits.
This post was edited on 8/13 at 7:38 am


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BestBanker
New Orleans Saints Fan
Around here.
Member since Nov 2011
10754 posts

re: The 28 Percent Rule
Anyone ever ask who makes the rules?


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40
Epic Cajun
New Orleans Pelicans Fan
Lafayette, LA
Member since Feb 2013
19466 posts
 Online 

re: The 28 Percent Rule
quote:

Percentages are useless. All that matters is the disposable income you will have remaining after the mortgage and other commitments.
Agreed. If you have a high income, you could be comfortable high a percentage higher than 28%, because there is a decent chance that your other bills won't necessarily scale with the price of your home. For instance, you aren't going to have to spend more money on food, just because you have a larger house note and a higher income.


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LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
16585 posts
 Online 

re: The 28 Percent Rule
quote:

Is this sound advice when determining how much to spend on a house note?


the 28 percent rule is part of the 28/36 rule, which states that total housing costs should be no more than 28 percent of GROSS income, and total housing plus all other debt service should be no more than 36 percent of GROSS income.

It's a quick calc used by underwriters to see how hard they need to look at a mortgage package.

In today's world, where a lot of people (outside this board) have car notes, student loan debt, other consumer debt, etc, it sure seems like people hit the 36% total level before they hit the 28% house only level.

I'm at 11 percent on house. If I was close to 28, I would feel that a lot of other stuff (savings, travel, entertainment, etc) would be crowded out. I think as you get close to 28 percent, you tend to feel "house poor".

That might be ok for a few years, for example, you want to live in a desired school district and you think your income will rise at a steady clip.


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makersmark1
Auburn Fan
earth
Member since Oct 2011
6742 posts

re: The 28 Percent Rule
After taxes and retirement contributions?

Maybe.

A house is a place to live.
Buy a house that meets your needs.
In general, unless you are there 5 years, breaking even is not guaranteed.



bayoudude
LSU Fan
Houma
Member since Dec 2007
19696 posts
 Online 

re: The 28 Percent Rule
Yep can’t bank on a house being an investment. Also have to account for projects that will arise from the new house I.e. landscaping, deck, outdoor kitchen etc not to mention the general upkeep and utility costs that come with the larger home. I was in my last home 12 years and just broke even when you take into account all the upgrades I put into the place over those years.


makersmark1
Auburn Fan
earth
Member since Oct 2011
6742 posts

re: The 28 Percent Rule
quote:

Also have to account for projects


I think 2% per year set aside for repairs and maintenance is a good starting point.

The cost of a 400,000 house is not just PITI, it also should include general maintenance.


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