Are You Overpaying for Your Rent or Mortgage? Let’s See…

how much should your rent be

Housing takes up a substantial portion of every person's salary. For most people, it's hard to know when they have devoted too much money to the rent or mortgage. Have you ever wondered if you're paying too much for your housing?

Use the second line of this percentage calculator to figure out what percentage of your monthly income is going towards your rent or mortgage. Got the number? Now let's see how you stack up! (after the jump)

How Much Should You Really be Paying for Your Rent or Mortgage?… 

The golden percentage? According to experts the magic number is 33% (after taxes).  Experts say that if you're paying this percentage of your income or less you are in good shape.

Percentage of Your Income

When determining if a house or apartment is a good fit for you financially use the 33% rule of thumb to decide if the cost of your housing will exceed your budget limitations. For other people, it makes sense to take a closer look to determine what the right percentage is which could vary depending on what kind of city you live in. New York City's housing costs are going to, obviously, be far greater than say, Lincoln, Nebraska's so that should be taken into account if the 33% rule doesn't seem to be making sense for your situation.

Getting Specific for Homebuyers

If you plan to buy a home, then you need to include much more than your monthly mortgage payment. Don't forget that you may have to pay for home insurance, maintenance, landscaping, home owner association fees, and annual property taxes, too. Consider all the costs when you decide how much house you can really afford to buy. Don't fall into the trap of becoming house poor. Keeping your mortgage payment under 33% of your income might not mean much when you forget to include the added expenses of home ownership so don't be tempted to take on more house than you can realistically afford. Be conservative and resist the urge to buy big just because you got approved for BIG.

Getting Specific for Renters

If you're a renter take a serious look at your expenses before deciding how much you can spend on housing. If you know you won't be able to restrain yourself from spending on entertainment and clothes, then maybe you should look for a place that costs far less than 33 percent of your income. If the rent barely fits into your budget and you're unwilling to change your lifestyle aim for a less expensive place even if it means you have to forgo some luxuries like air conditioning or a dishwasher. Do your best to be honest with yourself and avoid being overly optimistic if your past behaviors have indicated that you have a hard time controlling your spending when it comes to impulses, entertainment, and/or clothing.

Additional Considerations

  • Ask people who live in the same area as you what they are paying for their rent or mortgage and/or use Rentometer to see how your rent compares to other properties in your area.
  • What is your commute like? Gas and car maintenance can add-up quick. If you can live close to work or on a public transportation line that is ideal and will greatly reduce your monthly costs.
  • Talking with an apartment broker may be a good idea. They may have helpful insights into the apartment market that you might not.
  • Think about the perks that you get with your rent. Is there a gym membership, free parking, or are utilities and wi-fi included? These perks can help off-set your costs but don't let yourself get too swayed by these as the perks as the cost is often passed along to the consumer within the cost of the rent.
  • If you find you are paying too much for your rent or mortgage and you have extra room taking on a roommates might be an option for you. Homeowners, be sure to talk to your insurance company before taking on roommates because it could adversely affect your rate.
  • Additionally, if you find you are over-paying on your housing think about: creating extra income, lowering your other costs, negotiating with your landlord for a lower rent (research comparable properties in your area. Remember, it doesn't hurt to ask!), if you are over-paying for rent decide if your money could be put to better use by purchasing a home.


What'd your percentage end up being (I'm paying 32%)? Are you paying more than 33% of your income for your housing or less? Do you agree that this number is a good gauge to use when looking for housing?