Read the article. The question is Remy is trying to decide if he should rent or buy. He is considering moving from his city in the next two years. Remy found a house he likes, but it would take 50% of his budget. Remy would like to start building equity. The apartments with amenities and features he likes are around 25%-35% of his budget. Given this information, do you think he should rent or buy? Why? How Much Should You Be Spending on Housing?Here's how much of your income you should be spending on housingPublished Wed, Jun 6 201812:23 PM EDTUpdated Wed, Jun 6 20184:44 PM EDTKathleen Elkins @kathleen elkShare→A sign advertises an apartment for rent along a row of brownstone townhouses in Brooklyn, New York.Drew Angerer I Getty ImagesHousing is likely your biggest monthly expense and, if you live in a city like San Francisco or New York City, it may eat up a good chunk, or even the majority of your paycheck Justhow much of your income should be going towards your home?As a general rule, you want to spend no more than 30 percent of your monthly gross income on housing. If you're a renter, that 30 percent includes utilities, and if you're an owner, itincludes other home-ownership costs like mortgage interest, property taxes and maintenance.$20,000$30,000Why 30 percent? It's a standard that the government has been using since 1981: Those who spend more than 30 percent of their income on housing have historically been said tobe "cost burdened. Those who spend 50 percent or more are considered "severely cost burdened."Money expert David Bach offers a slightly different rule of thumb, which he outlines in his book, "The Automatic Millionaire": "According to the Federal Housing Association, a goodrule of thumb is that most people can afford to spend 29 percent of their gross income on housing expenses- as much as 41 percent if they have no debt."Using the FHA's rule of thumb, Bach broke down the range of what you can afford depending on your salary:HERE'S HOW MUCH HOME YOU CAN AFFORDANNUAL GROSS INCOME$40,000$50,000$60,000$70,000$80,000$90,000$100,000MONTHLYGROSS$1,667$2,500FREASINGTON REALTYAPARTMENT$3,333$4,176FOR RENT718-853-5000.917-771$5,000$5,833$6,667$7,500$8,333MONTHLYMORTGAGE (29%)$483$725$967$1,208$1,450$1,692$1,933$2,175$2,417MONTHLYMORTGAGE (41%)$683$1,025$1,367$1,712$2,050$2,391$2,733$3,075$3,417SOURCE: DAVID BACH, "THE AUTOMATIC MILLIONAIRE"These numbers can be applied to rent, Bach notes. So if you earn $70,000 a year, you should be able to spend at least $1,692 a month - and up to $2,391 a month - in the formof either rent or mortgage payments.Another popular guideline people follow is the "28/36 rule," which says that you should spend no more than 28 percent of your gross monthly income on housing costs and nomore than 36 percent on total debt, including housing and other debt like student loans or car loans Mortgage lenders use this rule to assess your borrowing capacity. If yourdebt-to-income ratio exceeds these limits, you may have to pay a higher interest rate or you might not be able to get a loan at all.While these guidelines can be helpful, everyone's financial situation is different. If you don't spend much on entertainment or transportation, you may have more room in yourbudget for housing. And if you're living in a big city, it may be impossible to keep your housing costs at or below 30 percent. In New York City, residents fork out nearly two-thirds oftheir income on rent, often because they don't have any other choice.On the flip side, if you're looking to retire early or have other big savings goals, you may choose to downsize and spend well under the 30 percent threshold. That's what one.Chicago-based couple did, and by spending less than 15 percent of their income on housing, they managed to bank $50,000 in just one year.To figure out how much you can afford to spend on housing, keep these guidelines in mind, but also look at your budget and consider your long-term saving goals.

In this case we need to guide the Remy regarding housing decision whether he should opt to buy the…

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Chapter1: Investments: Background And Issues

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