How the 28/36 Rule Can Help Omaha Homebuyers Budget a Home Purchase
Buying a home in Omaha is no small purchase and as such, some buyers have been tempted to stretch their budget as thin as possible in an attempt to afford the Omaha home they really love. Unfortunately, this is a very big risk that can end in buyer's remorse or maybe even the loss of your home when you can no longer stretch things to make ends meet.
The best way to be prepared for buying a home is to make sure you are in a financially stable place to purchase one that you will enjoy living in. There are many ways to budget for a home purchase to make sure it is well within your financial means. One of the most advised ways to budget for a home purchase used by financial pros is to use the 28/ 36 rule.
What is the 28/36 Rule?
This is a financial budgeting rule that applies to your housing costs. This rule essentially says that to run a comfortable budget your household living costs should not exceed 28% of your gross monthly income. The 36 number in the rule stands for the percentage that your total debt payments should not exceed. This helps to keep the household running smoothly and comfortably without stretching their income too thin. This rule has also been called the front-end ratio and back-end ratio for the debt-to-income ratio rule.
The rule is sometimes used by lenders for approval
Organizations like to use this rule as a good way to determine if a borrower will be reliable and financially capable of repaying a mortgage loan they are applying for. It helps them to determine whether a borrower will be less likely to default on a loan by ensuring that they have plenty of gross monthly income to more than cover the cost of the mandatory mortgage payment each month.
Having a debt-to-income ratio that is ideal is a huge part of being able to qualify for a mortgage loan. Most often conventional loan lenders will use this debt-to-income ratio as a launching point for approval. Sometimes FHA loans will be more flexible and consider borrowers with up to 43% total debt payments.
The rule is not set in stone when it comes to applying for mortgages but it is highly advised to keep these ratio percentages in all of your income versus housing cost situations so that you can comfortably afford all of your debts as well as enjoy life and do the things that you love while having plenty of money to pay for those things.
Why the 28/36 rule is widely advised and helpful
Life is very unpredictable and a number of things come up all the time that can throw us in a spin we didn't expect. When it comes to life occurrences that impact our finances we want to make sure we are prepared with plenty of money in our rainy day fund. Things happen all the time like the loss of a job or a medical emergency. You want to ensure that you will have money to help cover these things and still be able to pay your bills. Budgeting a home purchase where all of your money is tied up in the cost of living is a much bigger risk. There is no room to recover from the impact of a life emergency.
When buying a home it can take several years to repair your credit record and bounce back from dealing with foreclosure or bankruptcy. If you can plan ahead to live with plenty of income to help cushion life's blows it will help to prevent these things and keep you moving along instead of setting you back.
If you are looking to purchase a home in the Omaha area please contact us any time. We are here to help you find a home you love that fits within your affordable budget.
