Quick Pick: How much is too much?

A question I get a LOT from my friends and peers: How much of my income should go towards rent/mortgage?

My rule of thumb is 25% but I read a Washington Post article that says 30% of your gross income. Gross is your income before taxes and deductions are removed. This means the following affordabale rents if you make $3,000/mo gross income:

25% - $750/mo
30% - $900/mo

This percentage is not supposed to include utilities or other household expenses.Only your home payment.

Of course you need to adjust your percentage for your other monthly committments (i.e., car note, loan payments, child support, etc). If you're looking into buying, 30-33% is a decent estimate od affordability because your income will increase yearly and your mortgage payments will not.

Hopefully this adds to your roladex of  financially savvy information! Happy apartment/house hunting!

Rent vs Buy

Came across this interesting equation on CNN Money.

I know I've struggled with whether I should continue to rent or buy a place. I've stuck with renting because I'm not quite ready to be completely settled. I'd like the option of being able to pick up and move quickly, without having to worry about a property somewhere. Not sure if many of you have gone through the pros and cons of renting vs buying now that you've begun your career, but here's a cool way to know whether it's smart for you to buy versus rent according to the housing market.

Purchase price of a home

                                        _______________________       =     Rent/Own Ratio

Annual rent of a similar property

If this ratio is less than 15. You should buy. If it's over 15, it's probably financially better to rent.

The CNN feature went over 12 cities in the U.S. and whether it's smarter right now to rent or buy. Unfortunately Chicago wasn't on the list, but it's still cool to see the cities in case you're ever looking for a move.