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What percent of income should go to rent?


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2011 Jun 12, 3:22am   14,598 views  56 comments

by wuaname   ➕follow (0)   ignore (0)  

I've read different numbers on the internet, ranging from 25-40% of net income or gross income (big difference) should go to rent. I am thinking I need to bump up my budget for rental expense than what I have been thinking.

Thoughts?

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41   corntrollio   2011 Jun 15, 7:46am  

Schizlor says

It’s funny then that they set the HAMP “target” payment at 31% of gross income.

Schizlor says

Back in the day we’d regularly underwrite people to 55% DTI. That’s gross. And often they’d request exceptions (the underwriters) and get them, to exceed 55%. I’ve seen an approved loan go to closing above 70% DTI on gross income. Absolute madness.

In both cases, see my post above on the significant amount of debt most people successfully in HAMP have:

http://patrick.net/?p=803664&c=744211#comment-743898

The typical *successfully modified* person in HAMP had a 45% housing debt to income ratio. Think about all the people who flunked out of HAMP! -- all those people who re-defaulted or otherwise failed to meet the standards.

70% DTI is absurd -- that could be more around 100% of net in many cases! 55% is already ridiculous.

42   simchaland   2011 Jun 15, 9:13am  

kapone says

My apologies if it came out as if I was trying to say we work harder than anybody else. I was merely trying to post another example of what people are paying (in this case, us) in rent.

I understood that. No need to apologize. The issue around here is that there are people who insist that income is only based on how hard you work. I didn't think it was your issue, so I hope I haven't offended you.

And yes, I lived in Baltimore, MD. Your rent is very reasonable and I'm sure it doesn't get you very close to where you work. The Baltimore/DC area is an expensive place to live.

43   leo707   2011 Jun 15, 9:47am  

Schizlor says

Back in the day we’d regularly underwrite people to 55% DTI. That’s gross. And often they’d request exceptions (the underwriters) and get them, to exceed 55%. I’ve seen an approved loan go to closing above 70% DTI on gross income. Absolute madness.

While I am not near 350K/year, my wife and I have an income well above average (we work hard too).

This type of thing is why people making much less than us priced us out of the housing market.

44   drudometkin   2011 Jun 15, 2:36pm  

We avg about 10k/month gross, and our rent is 1775. We are young(30), and I would like this ratio to be half of what it is now by the time i'm 40. Id like to be in the 10-12% range.

45   missing   2011 Jun 15, 2:53pm  

People bragging while anonymous... beats me.

46   thomas.wong1986   2011 Jun 15, 3:01pm  

simchaland says

But you have to make over $100k per year because patnet users insist that all high tech professionals make over $100k per year, even the entry level high tech workers. Heck, they keep telling me that most people in the South Bay, Peninsula, and San Francisco make over $100k per year. They say that earning above $100k per year is the norm in the Bay Area.

Yes, $100K after 15 - 20 plus years of experience. The only ones coming close to $200K plus are sales people working and living in the field. But since they are living outside of CA, their living costs are much lower and location is not critical to job. They make salary and variable commission based on sales.

47   Hysteresis   2011 Jun 15, 3:38pm  

thomas.wong1986 says

Yes, $100K after 15 - 20 plus years of experience.

i was lucky. started working during the dot com bubble and was making six figures 3rd year of full time work. $92k in my second year of work. those were the days.

48   B.A.C.A.H.   2011 Jun 15, 3:57pm  

I was going to chime in but then realized that some posts sound like (Bay Arean) Boasting Opportunities. Besides it is transientory anyway. We're a few mouse clicks away from heading Detroit-way.

49   Hysteresis   2011 Jun 15, 4:32pm  

Sybrib says

I was going to chime in but then realized that some posts sound like (Bay Arean) Boasting Opportunities. Besides it is transientory anyway. We’re a few mouse clicks away from heading Detroit-way.

where are the people paying 50% or more of their paycheck to rent or mortgage?

they are conspicuously missing.

50   simchaland   2011 Jun 16, 1:35am  

MyPunanyIsBiggerThanYourPunany says

Sybrib says

I was going to chime in but then realized that some posts sound like (Bay Arean) Boasting Opportunities. Besides it is transientory anyway. We’re a few mouse clicks away from heading Detroit-way.

where are the people paying 50% or more of their paycheck to rent or mortgage?
they are conspicuously missing.

Most may not have Internet access or they are working 2+ jobs to make ends meet. Where I work many people have two jobs in order to make ends meet. This is common in the "rich" Bay Area. They may not be interested or have the time to surf online let alone to post.

51   edvard2   2011 Jun 16, 1:51am  

simchaland says

Some people keep claiming that income is only a function of how hard you work. That has never been true. And it’s not a failing if someone who works very hard doesn’t earn over the average income. Also let’s not forget that low wage workers do work just as hard for their money as higher wage earners.

Totally agree. I spent years working in retail because when I moved to California after college there were zero jobs due to the dot-com implosion. I was making $8 an hour. In that job I was a salesperson selling high end hardware. I had to know about 50 different finishes, know 15 different brand with all their models inside and out, know the dimensions of locks, certain types of keys, keep track of 100's of orders, and all kinds of other things. It was definitely hard work but you felt like you did an honest day's work. I was living paycheck to paycheck.

I now make an above average income. But I still drive the same old truck I had in high school and hardly ever buy fancy gadgets. I know what its like to work hard for not a lot of money and appreciate every penny.

52   soeren   2011 Jun 16, 2:39am  

Ideally? Zero.

53   leo707   2011 Jun 16, 2:52am  

simchaland says

MyPunanyIsBiggerThanYourPunany says

Sybrib says

I was going to chime in but then realized that some posts sound like (Bay Arean) Boasting Opportunities. Besides it is transientory anyway. We’re a few mouse clicks away from heading Detroit-way.

where are the people paying 50% or more of their paycheck to rent or mortgage?

they are conspicuously missing.

Most may not have Internet access or they are working 2+ jobs to make ends meet. Where I work many people have two jobs in order to make ends meet. This is common in the “rich” Bay Area. They may not be interested or have the time to surf online let alone to post.
I’m a proud Gemorran

Also, quite frankly I don't think the people who made the choice to spend 50%+ of their income on housing are interested or perhaps even aware of Pnet. There may be some here, but for the most part I think that Pnet attracts users interested in living within their means.

To address the original question of this thread, my understanding is that under 30% of gross, on housing, is "living within your means". However, I do agree with others, that have posted, saying that it is ideally as low as possible.

54   Schizlor   2011 Jun 16, 3:21am  

corntrollio says

Think about all the people who flunked out of HAMP!

This is a majority percentage I think.

corntrollio says

70% DTI is absurd — that could be more around 100% of net in many cases!

The funny thing was the approval was granted by Fannie Mae's DU (desktop underwriter) system. Sometimes our proprietary underwriting engine would not render a decision (approve, decline, or "manual underwrite required") but default to running the loan through the DU system instead. You could request DU process it manually, but sometimes our system would just default to that. You should have seen the look on the manager's face when the loan came back, "DU: Approve". She took it to the UW, who refused to sign off on it. I believe the DTI was 72%. The UW took it to the branch manager for approval. Her decision was, "Well....if DU approved it..." and they closed the loan.

I'l love to know how that one worked out for the borrower. I'm guessing you're correct in that they were probably pushing 100% DTI on net income.

This was the trend during the bubble. If someone wasn't comfortable signing off on something, they'd pass it up the chain until someone was willing to "back" the decision to approve it. It was a lot like the nazi trials, where anyone asking for an explanation got the, "I don't know, I was just doing what they told me to." Branch managers pushed for numbers (approvals) from underwriters, and they were encouraged to take loans (physical files) home with them (illegal in many instances) and to decision them off the clock (under veiled threat of being laid off for non-performance). It really was just an assembly line. If they could find any tiny shred of justificaiton for approving a loan, they would do it. ("Well, I have a DU approval, so who am I to decline this?")

It was all about, "Do I have a defensible reason for approving this loan if someone comes asking about it later?" not, "Do I have a justifable reason for approving this loan?"

55   burritos   2011 Jun 16, 3:57am  

FP says

People bragging while anonymous… beats me.

What's worse, bragging anonymously on line or actually bragging to people you know?

56   Katy Perry   2011 Jun 16, 5:59am  

I pay 8 percent of income to rent and over 40% a month to pay down a 15k credit card bill. I'm wacking it down by $1500-$2000 a month. I'm happy that it came together. I had some business start up cost for equipment and insurances( what a scam) and to tide me over before the checks started rolling in. I feel fortunate to have been abile to pull it together. I was Zero debt just three years ago. I'd like to never use that thing again. great thread BTW

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