The 36 percent rule is a guideline for consumers to help determine how much money they can comfortably spend on monthly debt payments, according to NerdWallet.com. The rule is based on dividing monthly mortgage payments (principal, interest, taxes, and insurance) and other monthly debt (vehicles, credit cards and student loans) by gross monthly income.
For example, an annual household income of $89,000 divided by 12 months equals a gross monthly income of $7,417. The 36 percent rule means the maximum monthly spending on all household debt should be about $2,670.
While lenders use the 36 percent rule in evaluating mortgage applications, they also consider other factors such as the amount of cash available for the down payment and closing costs, the borrowers’ credit scores and the amount of unsecured debt.
When buying a home, rely on an experienced real estate professional who will ensure that you are making the best purchase for your current need and household budget. To talk more about buying a home, or the steps to get started, please call, email, or text anytime.
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