The 30:30:3 Rule is Still Best When Buying a Home (Even Now)

The 30:30:3 Rule is Still Best When Buying a Home (Even Now)

Mortgage rates continue to stay low and this has many aspiring homeowners, and those buying a home and looking to move to more dreamy places excited to buy. Even though it is a good time to get a mortgage does not mean it is a good idea to actually get one for everyone.

There is still the possibility of qualifying for more home than you can afford. It is smart for anyone hoping to buy a home to apply the 30/30/3 rule before signing those mortgage papers. This is a three-part rule that buyers should try to apply all three parts if possible. If it is just not feasible to do so, then buyers should at least adhere to one.

Rule 1

Spend No More than 30% of Gross Income on the Monthly Mortgage Payment When Buying a Home

This is well-given advice by nearly every industry expert. But right now while mortgage rates are so very low some buyers may be tempted to bring on more than a 30% payment.

A lower interest rate already allows a buyer to afford more home because 30% gross income monthly payment will stretch further, but this could and does temp some buyers into seeing if they can get an even better home with just a little more money spent that they would not have been able to ever afford before.

It is just safer to stay on the more affordable side of things because you never know what life is going to throw at you. Instead of spending that money on a house put it into your savings account in case an emergency does strike again.

Rule 2

Have a 30% Down Payment Saved in Cash When Buying a Home

Before purchasing a home it is smart to be able to pay for 30% of the home with your own money. Put 20% of that cash into the down payment to receive the best possible interest rates and avoid paying for mortgage insurance, and set 10% aside as a healthy cash buffer.

This can sound like it is a little excessive seeing as there are many loans that allow you to put less of a down payment. In times where there is still so much uncertainty, it is better to have a large financial cushion. Most of the homeowners that ended up with an underwater mortgage in the previous recession had minimal down payments.

Rule 3

The Total Price of the Home Should be No More than 3x Your Gross Annual Income

This is the easiest way to determine what your max budget on a home should be when you are shopping. It takes into consideration down payment percentage and helps to prevent you from thinning out your budget for other life needs.

For example, someone earning $80,000 a year ideally should shop for homes around $240,000. Right now with mortgage rates so low rule number one could probably afford you a much more expensive home. Just keep in mind though, that more house brings higher taxes, and maintenance expenses as well.

For more information about purchasing Albuquerque real estate, Rio Rancho homes, and properties with easements throughout Albuquerque, contact my office at any time.

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John McCormack

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505-980-4576

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