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Question:


I think I'm paying too much for my apartment. Housing should typically be what percentage of one's budget?
-RyanThomas


Answer:


The old rule of thumb was that housing should account for no more than one-third of your take-home pay. But as home prices and rents soared during the inflationary 1970s and early 1980s, and then remained stubbornly elevated, it became clear that one-third just wasn't enough. Many who tried to stay within that limit were able to do it only through such contrivances as interest-only mortgages that allowed homeowners to spend less in the present while maintaining great and unshrinking indebtedness into the foreseeable future.

Then a fortuitous thing happened -- fortuitous if it didn't happen to you, that is. Real estate prices  collapsed beginning in the middle of the 2000s, and mortgage rates collapsed too. Anyone looking to buy a home is likely to find that it is more affordable than at any time in several decades. Now that old rule of thumb seems new again and quite valid. If you can spend no more than one-third of your take-home pay on housing, without resorting to sleight-of-hand from your mortgage lender, you should be in good shape without putting undue strain on your finances.

-Conrad de Aenlle



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