The “golden” rule helps first-time homebuyers determine the right type of home, many regret not knowing sooner.

In this era, with the support programs of banks as well as the emergence of a series of housing projects – to suit the needs of all subjects and preferences, buying a house is no longer a thing. that is too difficult or too expensive.

But having to calculate how after owning a home can enjoy the most is what makes people hesitate.

Accordingly, the 30/30/3 rule is the best rule that you can apply in the process of planning and looking to buy a home. This principle is supposed to help everyone intending to buy a home, especially those buying a home that they can’t afford or have to pay in installments.

The 30/30/3 rule is the best rule that you can apply when planning and looking to buy a home.

House buying rule 30/30/3

Although experts recommend following all three of these principles, even if you follow only part of the rule, the financial stress will be greatly reduced.

– Rule #1: Spend no more than 30% of your total income on monthly installments

Financial experts always advise that the monthly repayment of principal + interest should not exceed 30% of total income. However, as mortgage rates fall, many people are tempted and willing to spend more than 30%. This is very risky if you break the rule to buy a more expensive house. At that time, you will not have much money to spend for the following days.

Often, the people most at risk of breaking the first homebuyer rule are low to moderate income earners. However, be careful before any spending.

– Rule #2: Prepare a savings equal to 30% of the value of the house

If you’re planning to buy a home within the next 6 months, keep a down payment of at least 20% in cash. It is not very wise if you choose to use that savings to invest in stocks, securities and other investment / business plans at this time.

Also, if you don’t save at least 30% of your home’s value, it’s time to cut back on your living needs and work hard to increase your income.

– Rule #3: The price of the house should not exceed 3 times the total annual income

Here’s a quick way to screen for homes that fit your budget. This also helps you consider reducing your monthly payments and prevents you from overspending, even if you already have a large initial deposit.

When mortgage rates are plummeting, you can expand this number a bit, to 5 times your annual income. But remember, this means more debt, property taxes, and higher maintenance costs.

Example of not following the 30/30/3 . home buying rule

Let’s say you make $120,000 a year and have $100,000 in cash savings by age 32. This isn’t bad, but if you’re looking to buy a home that costs $850,000 – seven times your annual income, you need to take a closer look.

In this case, you can not deposit 20% of the house value, the maximum should only deposit 10%. So you have a cash budget of $15,000 and a mortgage of $765,000. Due to the low deposit, the best interest rate you can get is 3.75%. This is still low by standards, but your monthly payment of $3,543 makes up 35.4% of your $10,000 gross.

Not to mention, if you unfortunately quit your job, you may be “smooth” in a few months. In the event that things are not that bad, also think about sure that your income will be greatly reduced. However, think about all the stress you will have to face in order to be ready for the worst-case scenario.

So, instead of buying a home now, learn to save and build mid-term investments first. With 30% of the home’s value saved, you can make a 20% deposit and have a cash back-up.

Ways to comply with the 30/30/3 . home buying rule

While the 30/30/3 home buying rule may seem strict, know that the idea of ​​taking out a lot of debt to buy a home isn’t always the norm.

Here are some things you can do to circumvent the 30/30/3 rule if you feel like it’s too hard to do what needs to be done:

– Rent out a room or part of your house;

– Plan to increase income or find a new job with higher salary;

– Learn and build passive income sources for 1 extra payment towards your other home ownership expenses;

– Practice discipline when buying a house.

Although real estate investment is very beneficial, it is best to never let your personal financial situation “stretch like a string”. Remember, in addition to the installment payment when buying a home, you also need to pay many other costs such as: insurance, taxes and maintenance, home decoration.

So, be wise in choosing a home that not only suits your lifestyle but also fits your financial situation. If the house goes up in value by chance, that’s great. If not, that’s not a big deal because you’ve made so many wonderful memories with the house over the years.

According to businessinsider