There is no official rule for how much of your networth should be in your house, but a common guideline is that a primary home should not make up so much of your wealth that one bad year in the housing market, or one job loss, would derail your finances. For many middle-income households, home equity is 50 percent or more of net worth, which is not necessarily wrong but can be risky if little else is saved.
What the data shows
The Federal Reserve’s Survey of Consumer Finances reports that median US household net worth was roughly $192,900 in 2022, and for homeowners, the primary residence is typically the single largest asset. The pattern is clear: for households in the middle of the wealth distribution, housing represents a big share of what they own. Wealthier households tend to hold more in stocks, businesses and other investments, so their home is a smaller fraction.
Why a high share is not always a problem
- Forced savings. Paying a mortgage builds equity even when you wouldn’t otherwise invest.
- Living value. A home provides shelter, so part of its return is not financial.
- Tax features. In the US, there are some tax benefits to owning a primary residence, such as the capital gains exclusion on a sale under certain conditions. Rules change, so check with a tax professional.
- Younger households. Early in life, a home may be nearly the only asset, which is normal.
Why a very high share can be risky
- Concentration. Your wealth depends on one asset in one neighborhood.
- Illiquidity. You can’t sell a bedroom when you need cash. Selling takes time and costs money.
- Leverage. A mortgage magnifies losses. If prices fall 10 percent and you put down 10 percent, your equity could vanish.
- Carrying costs. Taxes, insurance and maintenance continue regardless of the market.
Rules of thumb people use
None of these are laws, and they don’t fit everyone, but they offer starting points.
Housing cost, not asset share
A widely repeated guideline suggests keeping total housing costs near 28 percent of gross income, though high-cost cities push many buyers beyond that. It addresses affordability rather than net worth, but the two are linked.
Equity share
Some planners prefer that home equity stay below roughly half of net worth once you are in your 40s or 50s, so that retirement accounts and other investments carry meaningful weight. Treat that as a rough conversation starter, not a target.
Emergency cash first
Before you stretch to buy more house, many advisors recommend having several months of expenses in accessible savings. Home equity doesn’t pay the bills unless you borrow against it.
A quick self-check
Take these four steps. First, estimate your home’s current value, using recent comparable sales rather than hope. Second, subtract the mortgage balance to find equity. Third, calculate your total net worth including retirement and savings. Fourth, divide home equity by net worth. If the result is very high, ask whether you could handle a price drop, a job change or a major repair without selling.
How to rebalance without selling
- Direct more new savings into retirement accounts and diversified investments.
- Pay down high-interest debt before extra mortgage payments, if the rate is higher.
- Build an emergency fund so the home isn’t your only cushion.
- Avoid borrowing against the house for consumption.
Our friends at Investopedia explain home equity in more depth if you want to see how lenders look at it.
Your situation matters most
Age, job stability, local housing market, family plans and risk tolerance all change the answer. A teacher with a pension and a stable income can carry more of their wealth in a house than a freelancer with variable pay. If you want tailored advice, a fee-only financial planner can run the numbers with you.
Bottom line
When you ask how much of your networth should be in your house, the honest answer is that it depends, but a home that makes up the large majority of your wealth deserves a plan for diversification and a solid emergency fund.
Special cases
If you are close to retirement
People nearing retirement often have a paid-off or nearly paid-off home that dominates their balance sheet. That can be fine if there is enough income from pensions, Social Security and savings. But if spending depends on selling the house, consider the timing risk and whether downsizing is realistic for you.
If you live in an expensive city
A modest home can carry a huge price tag in some markets, which pushes the share of net worth higher even when you’ve done nothing wrong. In that case, focus on keeping the monthly payment manageable and on building other assets alongside.
If you own rental property
Investment property adds both income and concentration risk. It helps to look at your total real estate exposure, not just the home you live in.
Revisit the question of how much of your networth should be in your house every year or two, because both prices and your own goals change.
This is general information, not financial advice.
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Photo: David Smith, CC BY-SA 2.0, via Wikimedia Commons
