It’s no secret that home prices continue to climb across the country. In February, the median existing-home price hit $398,400, up 3.8% from the year before, according to the National Association of REALTORS®. And despite mortgage rates staying relatively high, due to the low housing inventory that keeps prices elevated, homebuyers are still entering the market.
With home prices this high, buyers need to be especially cautious to avoid overextending themselves. One common rule of thumb suggests keeping housing costs to 30% of your gross monthly income. While this may be a helpful starting point, it doesn’t always hold up under today’s economic conditions.
The 30% guideline has been based off an income level and housing market that matches up, and now this is not the case. Median weekly earnings in the U.S. were $1,192 at the end of 2024, which equals about $5,165 a month. A 20% down payment on the median-priced home with a 30-year mortgage at the current average rate of 6.67% would lead to a monthly payment of around $2,050 just for principal and interest. That alone amounts to nearly 40% of median monthly income—well over the 30% benchmark—and doesn’t include taxes, insurance, or HOA dues.
Another flaw in the 30% rule is that it uses gross income instead of net income. Since most people pay taxes and contribute to things like retirement plans and health insurance before seeing their take-home pay, calculating housing expenses as a percentage of gross income can give a false sense of affordability. A more realistic budgeting approach would be to base housing costs on net income, which reflects what’s actually available to cover living expenses.
Even so, rules of thumb can only go so far. Every household has different priorities and obligations, and those should play a role in how much of your income goes toward housing. If you live in a walkable city and don’t need a car, you may be able to afford a higher housing payment because you’re not dealing with vehicle costs, which average more than $1,000 per month, according to AAA.
But if you have young children in daycare, your budget may be squeezed even further. Care.com reports the average cost of infant care at $343 per week, or roughly $1,372 a month—more than many mortgage payments. Families juggling multiple childcare costs should aim to keep housing well below the 30% mark.
Debt is another factor. The average U.S. credit card balance rose to $6,730 in late 2024, according to Experian. If you’re carrying significantly more than that, a sizable chunk of your paycheck may already be spoken for, making it harder to devote a large share to housing.
Your personal goals also matter. If you’re planning to help your kids pay for college or want to travel regularly, spending less on a mortgage can free up room in your budget to prioritize those things. And if you don’t expect a pension from your employer, your retirement savings will need to be a bigger part of your financial plan—which means housing may need to take up less.
Using the 50/30/20 budgeting model is one way to check your housing affordability. Under this approach, 50% of your take-home pay goes to needs, 30% to wants, and 20% to savings. But housing usually falls under “needs,” along with utilities, groceries, insurance, and transportation. If housing alone takes up the full 50%, the rest of your essential costs might push you over the edge.
The bottom line is that while the 30% rule offers a simple guideline, it doesn’t fit everyone’s situation in today’s market. Take a close look at your income, expenses, goals, and lifestyle before deciding how much you can really afford to spend on a home. A custom budget that reflects your life—not just a general rule—will always serve you better in the long run.
