Mortgage rule of thumb

[LivingAlmostLarge]

Two coworkers of my DH and 3 of my friends recently asked us rule of thumb for buying a home. PITI right now we are at 24% base and 16% with bonus. I think 24% is pretty comfortable. But maybe it's because it's more like 16% to us.

Anyway I know people on here are conservative but do you think 25% is too much for PITI?

Hypothetical Budget
25% PITI
15% retirement
5% savings
= 45% gone
Taxes 15% - common bracket
SS + Medicare 8%
= 68% gone

32% or about 1/3 of gross salary to spend on food, clothes, cars, travel, entertainment, etc? Is that too little? I mean I think this budget is mostly realistic percentages except most people do not save 15% to retirement or 5% to extra. I know that our friends are saving nothing for retirement instead trying to buy a home.

Do you think the rule of thumb is better off being 20%? Where does your mortgage/rent stand %? How do you get it to work with retirement savings? Is 15% too much you guys think for people to save for retirement? Think 10% is enough?

[disneysteve]

The rule of thumb used to be 28% for PITI and, I think, either 33% or 36% (I can't recall) for total debt servicing. I think 25% is just fine.

Where is mine? Well, that's not really a fair question since we've owned our home for 24 years, but right now PITI stands at just under 11%. When we bought the house, we were right around 20% I think.

[kork13]

Yes, in most cases 25% PITI should be fine, as long as you don't have an excessive debt load or excessive lifestyle. Certain aspects of your financial life could be a little tight, but that's part of the idea... 25% shouldn't be the goal -- it's a maximum, an upper limit.

[bjl584]

I guess it depends on what else is going on in their lives. 25% is a good upper limit assuming the rest of your finances are in order.

[disneysteve]

I would add that a good general budget template is 50/30/20, with 50% for needs, 30% for wants, and 20% for savings. Housing is a need so it needs to fit in the 50% category along with all of your other needs like food, clothing, transportation, medical care, etc. As long as it does, you should be in good shape.

[cypher1]

Depending on if there was additional monthly debt, I think 25% PITI is fine. Currently at 20%, but nine years ago when I originally bought my house I was at 28-29% PITI. While I know most on this forum would say that was too high. But I was comfortable with that payment while still being able to save and not have other debts to deal with.

[TexasHusker]

A lot of it depends on your income. If you make $50K a year, 25% PITI is a LOT. That only leaves $37,500 for all of your other things. If you make $500K a year, 25% PITI is negligible: you've still got $375K to work with. A person with $500K a year could easily go 50% PITI and never miss it a beat. I wouldn't recommend that, just pointing out that the income level is an important factor.