You should only pay 30 percent of your income to pay your rent to be in the safe zone! Don't live that way if you can't.
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Does anyone know what the good rule of thumb is for the ideal and maximum percentage of your income that you should be paying for rent or a mortgage?
When DH and I got married in 1954 it was the custom not to have a larger mortgage payment than one week's salary. I think people nowadays are paying more for whatever reasons. I would strongly advise against ARMs in view of all we've heard on the news. Try to get a fixed, low interest even if you have to settle for less house. More house usually means more upkeep and more insurance and utilities.... hence.. more expense.
I heard that it should be broken down as such:
35% Housing, 15% transportation, 10% savings, 15% (or less) debt, 25% living expenses. These are percentages of your take-home (net) pay.
I understand that you should never buy a house valued at more than 3 years salary.
It's difficult to say exactly. Figure out how much you currently spend on utilities, medical bills, food, everything you spend money on throughout the year. The whole 33% thing may have worked years back, but now, we have many options for extra expenses such as internet, cell phones, cable tv, eating out more often than when we were kids. YOU are the only one that knows how much you can afford. Do you need to wear name brand clothes and have the newest electronics? Then you better use 25% of your income. Do you live thrifty without cable, cell phones, etc? Then, you may be able to use the 33%. How much are you paying for rent? Do you have a lot of extra money? How much extra? If not, then your payment should be similar to your rent payment, if you have a lot extra, save that amount for a couple months and see how it goes. If your able to save it, and still live comfortably, then your payment could exceed your rent. The bank is going to give you MORE than you can really afford - I guarantee it! They don't know how much you spend on clothes, entertainment, etc. YOU are the only one that knows what YOU can afford!