Can the 30% rule help you budget for housing?

If you’re shopping for a home, one of the most important things to think about is your budget and whether the home you’re looking at will be affordable. The 30% rule may help you decide if a home will fit your budget.

We’ll cover the 30% rule, how it works, and other strategies you can use for budgeting or determining if a home is affordable, as well as ways to manage your housing costs.

What is the 30% rule for housing?

The 30% rule¹ is a rule of thumb suggested by financial planners for determining whether a home is affordable. The rule states that you should spend no more than 30% of your gross monthly income on housing.

Keep in mind that gross income is different from net income. Gross income is all of the money you earn, while net income is the amount you take home after things like taxes and payroll deductions.

This rule became popular in the late 1960s when the U.S. government capped the cost of rent in public housing at 25% of the renter’s income. In 1980, that limit was raised to 30% by Congress, at which point it became a standard measure of affordability.

These rules are no longer officially in place, but the Department of Housing and Urban Development still uses them in some cases when providing affordable housing to low-income households. Their influence has been large enough to set the precedent that 30% of gross income is an affordable housing payment.

Is the 30% rule outdated?

The 30% rule is an easy-to-remember rule of thumb, and it’s been used for many years. However, the housing markets of the 1960s and 1980s were very different from the market of the 2020s.

Things have changed in the past 40 or 60 years, so has the rule become outdated? After all, cost of living has changed, and many people are facing a different financial reality with things like student loan payments and saving for retirement rather than relying on a pension. Relying too heavily on the 30% rule could lead to some buyers overspending or becoming house poor.

These days, lenders use a more detailed and balanced approach, looking at things like credit score, down payment size, debt-to-income (DTI) ratio, and debt load when making lending decisions.

To understand whether a home will be affordable, you need to go beyond the 30% rule and look at the full financial picture.

How can you budget monthly housing expenses?

To determine whether a home will be affordable, it’s important to create a budget. That means figuring out how much money you make and where you spend that money. We’ll use the median income as a starting point.

In 2025, the median full-time worker earned about $62,192 per year or $5,182.67 a month. According to the 30% rule, they should aim for a rent or mortgage payment of $1,555 a month.

Recall that housing costs are more than just the mortgage. You also have to pay for things like utilities and taxes. That $1,555 could break down like this:

• Rent or mortgage: $1,150
• Utilities: $100
• Insurance: $80
• Property taxes: $225

Keep in mind that these numbers are flexible. If you can save on utilities, you may be able to afford higher mortgage payments. On the other hand, if electricity costs a lot in your area, you might need to find a cheaper home.

Unfortunately, today’s financial reality shows that either the 30% rule no longer works or that most people are stretching themselves financially. The average rent for an apartment in the U.S. is $1,639 per month, and the typical mortgage payment is $2,209 a month. That means that exploring other budgeting methods, looking for areas where homes are priced lower than average, or finding ways to increase your income is worth doing.

Alternative rules that may work for you 

The 30% rule is just one rule of thumb that you can use to determine if a mortgage payment is affordable. These other rules may be a better fit for your situation, and checking affordability with multiple rules is a good way to gain confidence in determining if a property is affordable for your budget.

The 28/36 rule

The 28/36 rule is another rule that people use when determining housing affordability these days. It states that you should dedicate no more than 28% of your gross monthly income to housing and 36% to all debt service, including housing payments. 

For example, if you make $8,000 a month, you would spend no more than $2,240 a month on housing and $2,880 on all debt combined.

This is a lower percentage of your income than the 30% rule, which can make it useful for people who want to be conservative with their finances.

The 35/45 rule

The 35/45 rule presents another way to look at housing affordability. It also accounts for post-tax income. It states that you should keep your total debt payment under 35% of your pre-tax income and 45% of your post-tax income.

Imagine you make $6,000 per month. 35% of your pre-tax income would be $2,100. If your overall tax rate is 14%, your post-tax income would be $5,160 per month. 45% of that amount is $2,322. You’d take the smaller of those two numbers, $2,100, and aim to keep your total debt payments below that amount.

The 25% rule

The 25% rule uses net income when determining housing affordability, which makes it easy to calculate and possibly more helpful for deciding if a home is truly affordable.

It states that you should spend no more than 25% of your net income, after taxes and other payroll deductions, on housing. If your take-home pay is $5,000 a month, that means spending no more than $1,250 a month on housing.

Tips for lowering your monthly mortgage payments

When it comes to making a home more affordable, you have two options: increase your income or reduce your housing costs.

Making more money is often easier said than done, though if you can do things like find a higher-paying job or work for a promotion at work, it can be a big help.

While it isn’t necessarily easy, there may be more options for reducing your monthly mortgage payments. Recall that your monthly payment includes many components, including principal and interest, property tax, home insurance, mortgage insurance, and more.

Use these tips to try to reduce your monthly payments.

• Improve your credit score: If you have better credit, you can often qualify for a lower interest rate, reducing the amount of interest you pay each month.
• Make a larger down payment: A larger down payment means you pay less principal each month and less interest accrues. It also reduces the lender’s risk, which could help you land a lower interest rate. Larger down payments can also help you avoid paying for mortgage insurance.
• Change your loan term: The longer the term of a loan, the less you’ll pay each month. However, you will typically pay more in interest over the long run, so extending the loan’s term isn’t always the best thing to do.

FAQ

If you’re in the market to buy a home, it’s important to make sure it will be affordable. Keep these things in mind.

What expenses do you need to prepare for besides your mortgage?

Your mortgage payment is just one of the costs of homeownership. You’ll have to budget for some of the upfront costs, like a down payment and closing costs. You’ll also want to have a plan for handling HOA fees, maintenance, and other recurring expenses such as replacing or repairing appliances.

What salary do you need to afford $1,500 rent?

According to the 30% rule, you should spend no more than 30% of your gross income on housing. If you pay $1,500 in rent each month, that means you should be making at least $5,000 a month or $60,000 per year. The 28/36 rule would state that you need to earn at least $5,357 a month or $64,285 a year.

What mortgage loan options are available?

There are many different mortgage programs that you can use to buy a home. Many people use conventional loans, but you can also apply for an FHA loan, which is a popular option for those with small down payments or less-than-ideal credit. There are also more specialized government programs, such as VA and USDA loans.

How much debt can you have and still get a mortgage?

For a conventional mortgage, the typical maximum allowable debt-to-income ratio is 36%. In some cases, it could be 45% or 50% if you meet the credit score and cash reserve requirements.

How does a down payment affect your monthly mortgage payment?

Your down payment affects your mortgage payment by influencing the amount of money you borrow. With a larger down payment, you do not need to borrow as much money to buy a home. That means a smaller principal payment and that less interest accrues each month.

In some cases, a larger down payment could also lead to a lower interest rate, saving you even more money. On top of that, if you get a conventional loan, making a down payment of at least 20% will let you avoid the additional cost of mortgage insurance.

The bottom line: Factor in the 30% rule before deciding on a home

The 30% rule is an easy-to-use rule of thumb for determining housing affordability, but it’s not the end-all-be-all. It’s been around for more than half a century now, and today’s housing market is very different from that of the 1960s.

Use the 30% rule as a starting point, but be sure to take a look at the full financial picture to really understand whether a home will be affordable before you buy a home.

If you’re in the market to buy a home, figuring out how much you can afford is key. You can use Rocket Mortgage’s home affordability calculator to get a better sense of how much home you can afford based on your unique financial situation.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.