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The 30-Percent Rule: A Historic Mortgage Guideline That's Outdated in 2023

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  //house-home.news-articles.net/content/2025/12/1 .. -mortgage-guideline-that-s-outdated-in-2023.html
  Published in House and Home on Friday, December 12th 2025 at 19:23 GMT by Local 12 WKRC Cincinnati

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Article Summary – “Want to buy a house? The old 30‑percent income rule won’t be enough in most cities” (Local12.com, November 2023)

The Local12 piece tackles a familiar mantra that has long guided first‑time buyers: “Never spend more than 30 % of your gross income on a mortgage payment.” The writers argue that the rule, which once provided a clear yardstick for affordability, is increasingly obsolete in today’s high‑price, high‑rate market. They back this claim with fresh data from the U.S. Census, the Federal Housing Finance Agency (FHFA), and the mortgage‑rate‑tracker Zillow, and they weave in personal anecdotes from buyers who struggled to keep their budgets in line.

1. The 30‑percent rule: its origins and logic

The article opens by tracing the 30‑percent guideline back to the 1950s, when the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) used it to standardize mortgage underwriting. The idea was simple: if a household’s monthly mortgage payment did not exceed 30 % of its pre‑tax income, the loan was considered “affordable” and thus more likely to be repaid. The rule helped lenders keep default rates low and made homeownership accessible to a broad cross‑section of the population.

2. How far we’ve moved from that baseline

Using the latest Census data, the article points out that median household income in the U.S. climbed to $68,700 in 2022, while the median home price in the same year reached $406,000. Plugging those numbers into the old rule, a family would need a 30‑year fixed‑rate mortgage of about $1,800 per month to stay under the 30 % ceiling—a figure that translates to a purchase price of roughly $350,000 at a 3.75 % interest rate. The writers emphasize that this scenario is no longer realistic for most urban centers.

The piece references a Zillow “Affordability Index” (linked directly from the article) that shows how many U.S. metropolitan statistical areas (MSAs) now require buyers to devote more than 40 % of their income to a mortgage if they want to purchase a median‑priced home. The local newsroom highlights that the percentage has been steadily rising for a decade, with the steepest climbs in the West Coast and the Sun Belt.

3. A city‑by‑city breakdown

To illustrate the disparity, Local12 includes a “hot‑spot” map of six MSAs that have seen the sharpest affordability gaps. The article’s data, sourced from the FHFA and the U.S. Census Bureau, shows:

The table (linked in the article to a downloadable PDF from the FHFA) starkly demonstrates that in the top five cities, a buyer would need to allocate more than half of their monthly earnings to a mortgage in order to purchase a median‑priced home. Even in Phoenix, a city often cited as “affordable,” the required mortgage payment reaches 28 %—just a hair below the rule but still leaving less room for student debt, retirement savings, and other expenses.

4. The ripple effect of rising interest rates

The writers connect affordability gaps to the Fed’s tightening cycle. They quote a 2023 Federal Reserve policy statement (link provided in the article) that explains how the benchmark rate rose from 0.25 % in 2020 to 5.25 % by 2023, pushing the average 30‑year fixed mortgage rate from 3.25 % to 7 %. A quick calculation (provided via a mortgage‑calculator widget embedded in the article) shows that a $300,000 loan would jump from $1,430 per month at 3.25 % to $1,920 at 7 %—a 34 % increase. That shift translates to an extra $400 a month that families can no longer afford.

The piece also cites a recent report from the Mortgage Bankers Association (MBS) that reveals 12 % of U.S. households are “mortgage‑overburdened” (paying 50 % or more of income on a mortgage). Local12 notes that the overburdened figure rose from 5 % in 2018 to 12 % in 2022, implying a widening gap between earning potential and housing costs.

5. The impact on other financial priorities

The article weaves in personal stories—one from a 32‑year‑old engineer in Seattle who had to refinance to keep her mortgage at a sustainable 35 % of income, and another from a college‑grad in Austin who still struggles to pay off a 15 % student‑loan balance after a 25 % housing expense. In each case, the writers highlight how high housing costs can crowd out savings, health care, and emergency funds. They point to a National Bureau of Economic Research study (link in the article) that found households with mortgage payments over 30 % were 20 % less likely to have a safety net.

6. Alternatives and coping mechanisms

To end on a more hopeful note, the piece outlines a range of strategies that buyers and renters can adopt to navigate the new affordability landscape:

The writers also recommend that buyers factor in other costs—property taxes, insurance, HOA fees—into their affordability calculations. They provide a quick‑check worksheet (link to a Google Sheet) that adjusts the 30‑percent rule to include a 1.5 % property‑tax estimate and a $600 annual homeowner‑insurance premium.

7. Take‑away message

Local12’s piece ends on a sober note: “The 30‑percent rule is a relic, not a reality.” The article argues that while the rule still has a role as a screening tool for lenders, buyers must adopt a more nuanced, data‑driven approach that accounts for local market dynamics, personal debt profiles, and shifting interest rates. By leveraging alternative financing options and re‑evaluating their spending priorities, buyers can navigate the new affordability terrain without sacrificing long‑term financial health.