I’m a Financial Planning Expert: Here’s the Most You Should Spend on Your Rent or Mortgage
The cost of living and, housing in particular, has skyrocketed in recent years. The average monthly mortgage payment in the U.S. is now $2,317, while the average monthly rent payment is now $1,713. For many Americans, this means that housing is taking up a significant percentage of their income. But how much should you ideally be spending?
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GOBankingRates spoke with Mark Charnet, a financial advisor and CEO of American Prosperity Group in Sparta, New Jersey, about the most you should be spending on your rent or mortgage.
The Maximum Percentage To Spend on Housing
Whether you rent or own, the maximum percentage of your income that you should spend on housing remains the same.
“The industry standard is that the monthly rent or mortgage should not exceed 25% of your monthly income level,” Charnet said. “If you’re married or purchasing with a spouse or significant other, the 25% should be the combination of your household income.”
What To Do If You’re Spending More
If you are renting and are spending more than 25% of your income on rent, you should look for a lower-cost housing option such as moving to a less expensive area or getting a roommate. If you own, you still have options.
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“If you’re currently spending more than this percentage, you could either pay off the loan, borrow from another source or refinance it at a lower rate,” Charnet said. “The last resort is to take in a renter for additional monthly funds to accelerate the payback period. You could also take out a 401(k) loan to reduce the balance so that the payment will be in line with the 25% model.”
To Rent or To Buy?
If you’re considering making the transition from renting to buying, make sure your new monthly payment will still fall within 25% of your income.
“It is far better to own as opposed to renting, but if the payments are too high to own and are crushing the borrower, renting may be the best temporary option,” Charnet said. “Until either a roommate may be found or there is a second income coming into the household from a spouse, renting may be the better way to go. Moving to a cheaper area for rent or purchase may be a secondary answer as well.”
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This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: Here’s the Most You Should Spend on Your Rent or Mortgage
