Home Affordability SimulatorBuy the house without giving up early retirement

What percent of income should go to your mortgage?

The classic answer is 28% of gross income. A lender's answer is "whatever keeps total debt under 43–50%." Both are payment arithmetic wearing the costume of a plan: neither one knows whether the money left after the payment is enough to keep your retirement funded, or whether one layoff in a down market would force a sale. So instead of restating a rule, here is the measurement. One household — $100,000 of gross income, dual-income scale savings, the full Monte Carlo model of crashes, correlated job loss, taxes, and every carrying cost — buying at six prices, a thousand simulated futures each. The percent of income is the result of each price, and next to it sit the two numbers the rules can't see: the odds of retiring on time, and the odds of losing the house.

What each percent of income actually buys

Three things in that list are worth staring at. First, the curve steepens as it goes: the step from 26% to 34% of gross costs this household 21 percentage points of retirement odds, and the next step to 42% costs 33 more — each additional slice of income handed to the house is a slice that was doing more compounding than the one before it. Second, these are all-in ratios — mortgage, property tax, insurance, and maintenance together (the payment-vs-bill gap) — which is why the $400K house lands at 34% here rather than the ~24% a payment-only calculator would report; a 28% front-end rule and these numbers aren't even measuring the same bill. Third, the forced-sale column doesn't move in lockstep with the retirement column: ruin risk stays near zero until the stretch gets extreme and then compounds violently, because losing the house takes a coincidence — a layoff arriving in a market that has also marked down the savings that were supposed to bridge it.

Why your number isn't this household's number

This is one illustrative household, and the whole point of running it honestly is that the "right percent" moved every time we changed something a ratio can't see: the size of the after-closing cash buffer (measured here), the savings rate that has to outrun the mortgage, the state tax drag, the retirement date itself. A household with fat retirement accounts and a year of cash can carry 35% of gross safely; a household with neither can be fragile at 25%. That is the case against the 28% rule in one sentence — the longer version is here — and it cuts both ways: the rule blesses purchases it shouldn't and blocks purchases it needn't.

So treat the table above as the shape of the curve, not your answer. Your answer takes about two minutes: run the simulator with your income, your savings, and your target age, and read the percent of income off the price where your own odds are still acceptable. Or start from a neighboring scenario — a $400K house on a $100K salary — and correct it toward your life.

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