What Is an Appropriate Monthly Housing Payment?

Your monthly housing payment is probably one of your most expensive bills. According to data collected from the Bureau of Labor Statistics, the average house payment is $1,159 for a 30-year mortgage. If you’re considering moving and want to know how much house you can afford—whether that’s buying or renting—this article can help. Keep reading for a breakdown on how to calculate monthly housing payments, what’s an appropriate housing payment for you and what to do if you’re already stretched beyond your means.

How Do You Calculate Monthly Housing Costs?

The general rule of thumb is that your monthly housing costs should be at or less than 28% of your monthly gross income. Monthly housing costs include your principal and interest payment as well as your homeowners’ insurance premium and taxes. Some formulas also add in utility costs into these numbers if you want to be on the safe side of affordability.

Here’s a specific example. Say that your gross income is $100,000 per year. That means that, according to the 28% rule, you should be spending no more than $28,000 per year on housing. This breaks down to about $2,333 per month.

Below are some more examples of how this math works in real situations.

How Much Is a Payment on a $400,000 House?

How much the payment is on a $400,000 house depends on the interest rate and length of the loan. For a 30-year loan with a 4% interest rate, the monthly principal and interest payment is $1,910. For a 15-year loan with the same interest rate, the monthly principal and interest payment would be $2,959.

However, other factors can change this payment. If you’re buying a $400,000 house with a down payment, your actual loan amount—and therefore the payment—will be lower. It’s also important to keep in mind that these numbers don’t include other expenses that are often rolled into a mortgage payment, such as homeowners insurance and taxes.

How Much Income Do You Need for a $350,000 Mortgage?

A $350,000 mortgage equals out to about $2,000 a month including principal, interest, taxes and insurance. Following the rule that your housing costs shouldn’t equal more than 28% of your monthly gross income, you’ll need an income of $7,142 per month or around $85,714 per year to afford a $350,000 mortgage.

However, it’s important to remember that everyone’s budget is different, and if you have high debt payments or other expenses that take up more of your monthly income, this may be too expensive for your budget. Conversely, if your mortgage is your only payment and you don’t have a lot of other expenses, you may be able to comfortably afford more house than the 28% rule dictates.

What Is a Good Monthly Housing Payment?

A good monthly housing payment lets you live within your means without worrying about how you’re going to pay your mortgage or rent every month. And what this number is depends on your unique situation, but you can use the 28% rule as a general guideline and adjust from there.

For example, if you’re a one-income family, you may want to keep your monthly housing costs to 20% or so of your monthly income to ensure you have wiggle room if there’s an emergency. If you have two incomes, substantial savings and minimal monthly expenses and debt payments, you may be able to push your percentage higher without having to worry.

What Can You Do If Your Payment Is Too High?

So, what happens if you’ve run the math and found your current monthly housing costs are above 28%? One option is to downsize. This isn’t always feasible, but you may be able to find cheaper housing that gets you back within the guidelines and provides some breathing room in your budget. If you’re considering moving, make sure to keep an eye on current mortgage rates, as these can make a big difference in your monthly payment amount.

Another option is to cut expenses in other areas. Maybe you can trim back on eating out or put a bit less money in investing to free up more money in your monthly budget. You may also want to think about increasing your income. Sometimes, the little boost from an extra part-time gig can be enough to make you feel more comfortable with your current payment.

Keep an Eye on Your Credit

It’s also always a good idea to know exactly what your credit is doing and if there’s any room for improvement, because your credit can affect everything from your mortgage rate and terms to whether you qualify for a rental. Get your credit report and keep an eye on your credit scores with ExtraCredit.

Credit Tools