What Is Included in the "Housing" Budget Category?

Ryan asks if the recommended 25% of income for housing should include taxes and insurance.

QUESTION: Ryan on Twitter asks if the recommended 25% of income for housing should include taxes and insurance.

ANSWER: Yeah. Your house payment should be around a fourth of your take-home pay on a 15-year fixed-rate mortgage if you’re calculating. Now by the way, if you can get an adjustable-rate 30-year mortgage, you can quality for almost twice as much house as I’m talking about. But my goal here is not to put you into the Taj Mahal. My goal is to get you into a home and get the stinking thing paid off as fast as you can possibly get it paid off. That’s the direction I would go with it.

If you cheat a little bit one way or the other, you do it. You’re an adult. You decide what to do. That’s a guideline that says, “Hey, don’t buy houses like most people do,” which is so much house they can barely breathe and you become what we call house poor, where you can’t get any things done.