No more than 15% of your after-tax income should go toward rent, and no more than 20% of your after-tax income should go toward a mortgage.
Why the difference? Buying a home builds your net worth. Rent does not.
The scam you have all heard for years, that 25-33% of your income should go to housing, was created by banks and realtors to fuck you over. Lenders historically set debt-to-income thresholds based on how much they could safely extract, not on what keeps you financially healthy.
Use your after-tax income when you run the numbers. If your housing cost is already past these caps, the rest of your budget gets squeezed: savings, debt payoff, emergencies, and everything else that actually builds a future.
“But I couldn’t afford rent in my area at 15%”
That is the point. If market rent in your area already eats more than 15% of your after-tax income, the area is too expensive for your income, not proof that the rule is wrong.
Your options are not endless, but they are real:
- Move somewhere cheaper. A different city, a different neighborhood, a smaller place, or a longer commute can put housing back inside a budget that still leaves room to live.
- Share the cost. A roommate, partner, or family arrangement can bring your share under the cap without pretending the rent itself is affordable.
- Raise income or cut elsewhere with a plan. Temporary overages happen. Treating 30%+ rent as normal forever usually means you never catch up on savings or debt.
Staying put because “that’s just what rent costs here” is how people stay house-poor for years. The rule is a warning light. If it is flashing, the answer is usually to change the housing, not to rewrite the math.
Want to compare the real monthly cost of renting versus buying? Try the Rent vs Buy tool.