Home > PITI Rule of Thumb

PITI Rule of Thumb

September 8th, 2020 at 10:42 pm

Home purchasing has rules of thumb. The general rule of thumb is 28% PITI. So your mortgage should be no more than 28% of your income. The second part is 36% of your gross income including all other debts. Meaning if you have a lot of medical, student loans, credit cards, car payments, your entire debt load should be no more than 36% of total income. The flexibility is if you have no other debt you could stretch more and buy more house. Or if you have a lot of student loans maybe the answer is to buy a smaller home or wait for a bigger down payment.

So you know we are in the process of refinancing. We are also in the process of taking a salary cut. We have been in our current house 3 years. When we bought it we were at a PITI of ~20%. That was pretty comfortable. I have to say that staying within the 28%/36% isn't a bad thing.

But now we are creating a new budget and our PITI is at 30% and I have to say it feels tight even without us going to the new budget. This is the first time in a long time I recall what it was like to live where we stretch ourselves to afford our home. We are officially going to be "house poor" again.

When we bought our condo in 2002 we were at about 40% of our income and it was tight. But we weren't saving for retirement and we were used to living like students (which we were). In 2005 we bought our townhouse and if I recall we finally were comfortable at 30% PITI. It was a bit tight but getting easier. During the next 10 years we had a couple of promotions/raises, lost 1 income, and refinanced our mortgage to get it down to 15% income. It was awesome. We were finally able to really save and enjoy life.

We moved, rented, and then bought 3 years ago. And when we bought at 20% income it was really comfortable because really it was much lower with DH's income skyrocketing. But now we are going back to a much tighter budget and suddenly the house is looking like an albatross.

I am grateful we bought way less house than we could afford. But it makes me reflect that often times people struggle to budget and get out of debt. And I can see that easily happening to us. It's not the small things. We don't have any other debt so in theory we could afford 36% PITI and we are at 30% PITI which isn't much more than 28% PITI. But every % counts and it really just has this ripple effect on the rest of the budget. Makes you more aware of how much your heating/utilities are. Makes you aware of how expensive your daily starbucks habit it.

While the truth is the $100/month starbucks habit shouldn't be why you can't afford your house. Your house should be affordable because you bought it to be affordable. Not looking to scrounge. I guess now that I'm in that position of examining every expense. If people ask me my opinion?

I can now firmly state that I'd rather have a smaller mortgage and less house and be able to comfortably afford it than something we stretch to buy. And as I get older it's so much harder to live the same lifestyle we had in our 20s that we did. So our lifestyle is different.

Have you noticed a change in lifestyle from 20 years ago? Do you think you could go back to when you were younger and made less money?

2 Responses to “PITI Rule of Thumb”

  1. GoodLiving Says:

    20 years ago, I was just becoming a single parent and looking at grad school and working full time. I had daycare expenses but also child support. It was never a lot but it sure helped. I wasn't even sure I could keep up the mortgage so I rented out a room for a while. Once I got used to my single income, I was fine. In fact, I had a supervisor who recommended me to start retirement (I was a little over 30) and I was saving 20% net income in some form. I knew that I would likely need to support myself so I tried to be as stringent as I could. I'm now in a really good spot and might be able to retire early if I can figure out health insurance.

  2. crazyliblady Says:

    I have definitely noticed a change in my lifestyle from 20 years ago. I used to be much more focused on buying stuff, but now I resist buying more stuff and even get rid of stuff I no longer have a use for. I am not concerned with what people outside my circle think of me, how I look, or what I do for a living, etc. I realize that the only yardstick I need to measure up to is my own and what those closest to me think. I am much more focused on creating experiences and relationships (reading, connecting with others, and helping other people who need help) and self reliance (growing some of my own food and preserving it and saving money).

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
Will not be published.

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]