--- title: How Much House Can You Afford? Many Buyers Are Ignoring a Classic Rule of Thumb description: First-time homebuyers are spending over 40% of their income on mortgage payments due to high mortgage rates and housing prices. authors: - name: Brenden Rearick role: Reporter url: https://money.com/author/brenden-rearick/ bio: Brenden Rearick is a former news reporter at Money who specialized in mortgages, real estate, and personal finance topics. education: University of Pittsburgh, BA at_money_since: 2023 articles: 133 covers: - Housing - Banking - Career Advice - Credit - Credit Cards - Economy and Politics - Education - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Retirement - Shopping - Taxes - Technology former_staff: true editors: - name: Brad Tuttle role: Senior Editor url: https://money.com/author/brad-tuttle/ bio: Brad Tuttle is a former senior editor at Money with over 10 years’ experience covering a vast number of personal finance topics, including careers, cars, travel, budgeting, investing, insurance, credit cards, consumer psychology, real estate, banking, and shopping and deals. education: Columbia University School of Journalism, MS at_money_since: 2014 articles: 366 covers: - Housing - Banking - Business - Career Advice - Credit - Credit Cards - Economy and Politics - Education - Health and Wellness - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Pets - Professional Services - Retirement - Shopping - Taxes - Technology social: - https://twitter.com/bradrtuttle - https://linkedin.com/in/brad-tuttle-834b225 former_staff: true published: '2023-11-14T21:28:16.000Z' modified: '2024-01-10T15:12:49.000Z' section: Housing tags: - News word_count: 585 canonical: https://money.com/first-time-homebuyers-mortgage-income-rule/ type: NewsArticle source: structured-blocks --- > **Disclosure:** We may earn a fee if you click on the links below. Compensation does not determine ranking. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Couple standing in-front of a very tall, narrow house with a pink sky in the background](https://img.money.com/2023/11/News-Homebuyers-Breaking-Mortgage-Rules.jpg) The finance world is full of rules that, while not set in stone, help people to stay within their budgets and making sound decisions for their money. One of those rules is to keep [mortgage payments under 28%](https://money.com/what-is-the-28-36-rule/) of your household income. However, thanks to today's high [mortgage rates](https://money.com/current-mortgage-rates/) and elevated housing prices in general, [first-time homebuyers](https://money.com/first-time-buying-home-checklist/) are spending well beyond that recommended 28% figure: Typical payments for this group now account for over 40% of their gross income. A [report](https://www.nar.realtor/newsroom/more-than-80-of-metro-areas-registered-home-price-increases-in-third-quarter-of-2023) from the National Association of Realtors shows that first-time homebuyers may be overestimating [how much house they can afford](https://money.com/how-much-house-can-i-afford/). Typical first-time buyers spent 40.4% of their gross income on mortgage payments during the third quarter of the year, up 2.2 percentage points from the second quarter. For reference, first-time home buyers spent, on average, 23.3% of their gross income on a mortgage 10 years ago, in 2013. In 2018, they spent 26.4% on payments. Rules differ among experts, but it's often advised that homeowners [calculate their mortgage](https://money.com/mortgage-calculator/) so that they spend no more than 28% of their gross income on payments. Keeping below this range generally stops owners from feeling overburdened by their home payments and ensures that they have plenty to budget for other expenses. ([Mortgage lenders](https://money.com/best-mortgage-lenders/) may also use the so-called 28/36 rule to determine your ability to afford a new home.) Apparently, though, many first-time homebuyers are ignoring the 28% rule because of their desire to own a house — and perhaps, their feeling that housing costs aren't going to come down anytime in the near future. [Mortgage rates](https://money.com/current-mortgage-rates/) are hovering now at around 7.5% — a slight retreat from the 8% rates seen in October, though quite high in the grand scheme. Since January 2022, when rates were around 3%, they've been climbing steadily upward, ever since the Federal Reserve began hiking interest rates that year. The Fed is vague on when it will finally finish these hikes and (possibly) start slashing rates again. Now, those who are pursuing their dream homes in spite of the adverse market conditions are paying a lot to do so. The NAR's report calculates that a starter home (valued at around $345,000) with a 10% down payment loan cost the buyer $2,149 per month in the third quarter of 2023. A year ago, the comparable monthly cost for a starter home was just $1,806. Mortgage rates aren't the only driving force behind rising costs. The NAR reported that single-family existing home prices rose in 82% of the 221 metro areas it measured during the third quarter. Almost 20% of these metro areas saw prices grow by 10% or more year-over-year. These factors are driving payments higher not just for first-time buyers, but for all homebuyers. The average mortgage payment with a 20% down payment loan increased from $1,838 per month in the third quarter of 2022 to $2,192 in the same period this year, representing a 19% year-over-year increase. For the time being at least, homebuyers overall have been sticking to the 28% rule of thumb. Households as a whole are spending 26.8% of total income on mortgage payments, according to NAR data. But this figure has risen a bit from 23.5% a year ago. ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/first-time-homebuyers-mortgage-income-rule/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Housing", "item": "https://money.com/housing/" }, { "@type": "ListItem", "position": 3, "name": "How Much House Can You Afford? 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