This Number Is More Important Than Your Mortgage Rate

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Pay attention to it in the course of buying a home. 

It’s hardly a secret that mortgage rates are considerably higher today than they were a year ago. In fact, as of this writing, the average 30-year fixed mortgage rate is 6.6%, according to Freddie Mac. Given that home prices are also still elevated these days compared to pre-pandemic levels, it’s easy to see why so many people have struggled to buy a home this year — even with the competition not being as fierce as it was around this time last year.

Now clearly, the higher your mortgage rate, the more your home will end up costing you. But you don’t just want to think about borrowing rates in the course of buying a home. You should also pay attention to another key number — 30%.

Why 30% is important when you’re buying a home

The last thing you want to do is buy a home you wind up struggling to afford. To avoid that scenario, you’ll want to stick to the 30% rule.

The rule simply has you making sure your monthly housing costs do not exceed 30% of your take-home pay. And when we talk about monthly housing costs, it’s not just a mortgage payment to account for. That figure should also include expenses like property taxes, homeowners insurance, and HOA fees, if that’s something you’ll have to pay.

What might happen if you go beyond 30% of your take-home pay to cover your housing costs? Well, a number of things.

First, you might fall behind on your mortgage payments, which could, eventually, put you at risk of losing your home. And even if things don’t reach that point, being delinquent on a mortgage could result in major credit score damage.

Plus, living a perpetually cash-strapped existence just isn’t pleasant. Financial worries can keep you awake at night and impact your productivity on the job. They can even, in some situations, have a negative impact on your health. And if you become house poor, you might start to miss some of the other things you’re forced to cut back on, from vacations to the leeway to order in dinner when you’re feeling too tired or busy to cook. That’s just not a great way to live.

Don’t just focus on mortgage rates

You may be looking to time your home purchase to when mortgage rates drop. That’s not necessarily a bad idea if it works out. But rather than fixate on snagging the lowest mortgage rate possible, figure out your personal home affordability number.

If you bring home $4,500 a month, it leaves you with $1,350 a month to spend on housing. If property taxes and homeowners insurance in your area, based on what you’ve researched, commonly amount to $350, and you’re not buying in an HOA, you can afford a mortgage payment of about $1,000 a month. If you’re certain to stay at or below that number, you’re in a pretty good position to buy a home — even if you end up with a mortgage rate that’s higher than you’d like it to be.

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