The 28/36 rule is a widely used guideline in the lending industry that helps determine how much a borrower can reasonably afford to spend on housing and other monthly debt obligations. This rule was put in place to ensure that borrowers do not overextend themselves, as it can lead to financial difficulties down the road. Here are some key things to keep in mind with the 28/36 rule:
Housing expenses: Your housing expenses should not exceed 28% of your total monthly income. This includes your mortgage payment, property taxes, and any homeowner association fees.
Debt obligations: Your total monthly debt obligations, including your mortgage payment, credit card bills, car loans, and other debts, should not exceed 36% of your total monthly income.
Importance of the rule: It’s important to adhere to the 28/36 rule to ensure that you don’t end up with a mortgage or other debt that you can’t afford. Overextending yourself can lead to serious financial problems, including foreclosure and bankruptcy.
Exceptions: While the 28/36 rule is a common guideline, there may be circumstances where it’s not appropriate. For example, if you have a high income and minimal debt, you may be able to afford a higher housing expense.
Importance of budgeting: Ultimately, the 28/36 rule is just a starting point, and it’s important to develop a comprehensive budget that takes into account all of your expenses and financial goals. By carefully managing your income and debt, you can ensure that you’re on track to achieve your financial objectives.
Remember that the 28/36 rule is simply a guideline, and it’s up to you to ensure that you’re making financially responsible decisions. By keeping your debt and housing expenses in check, you can enjoy the peace of mind that comes with financial stability.