35 Percent Rule Of Thumb
Definition of "35 percent rule of thumb"
Have you heard someone talking about a 35-percent rule of thumb and you nodded acknowledging but the truth is that you had NO idea what in the world a “35-percent rule of thumb” means?!
We’ve all been there, my friend.
The 35-percent rule of thumb is a calculation practice that lenders make in order to determine the borrower’s risk. Actually, it’s sort of a euphemism to say they’re assessing the risk. The truth is that the 35-percent rule of thumb determines if the borrower can or cannot pay the loan. That’s why it's a “rule” and not an “estimation”. In fact, ever since the Mortgage Reform and Anti-Predatory Lending Act of 2010, the 35 percent rule of thumb has been upgraded to a law. By law, lenders can’t underwrite the loan unless they can determine the borrower will be able to pay up the loan.
The whole idea behind the 35-percent rule of thumb is this: a borrower can afford no more than 35% of its monthly take-home pay. So, let’s say that borrower Christie has a gross annual income of $50,000 and her take-home pay is $2,095 per month. That would mean that, under the 35-percent rule of thumb, Christie could not afford a monthly payment of $1,300 (35%) or higher, for instance. Usually, the workaround here is asking for a bigger down payment to water down the size of the installments, or extending the mortgage term, and mortgage payment scheduled in a way that it preserves the borrower’s finances and prevents the financial system from collapsing from irresponsible loans that are never paid and increasingly grow interest damaging in the process the economy as a whole.
Real Estate Advice:
Does all of this seem like rocket science to you? Then contact a rocket scientist: they’re called real estate agents and we have some of the best right here at The OFFICIAL Real Estate Agent Directory®
Popular Real Estate Terms
Same as term higher and best use: Use of a parcel of land that will produce the greatest current value. ...
Structure that has the same blue print and design as all the other homes in a given development; the opposite of custom built. ...
The right of a person or business to renew a contract. For example, the tenant may have the right to renew a lease for a specified amount and term. ...
An unpreventable, overwhelming, and irresistible force. It is common to place a force majeure clause in a construction contract to indemnify a construction deadline in the event an act of ...
Regularly, subsequent means something which occurs at a later date. In other words, a subsequent event follows a prior occurrence. For example, new circumstances arise after a contract is ...
Arrangement whereby a party providing financing gets a portion of the ownership. ...
Percentage of rentals estimated not to be made because of actual and anticipated vacancies. ...
Under a FHA-insured mortgage, both the property and the borrower must meet certain minimum standards. The borrower is charged an insurance fee of one-half percent on the unpaid balance and ...
Organization that manages the relocation of the employees of client companies from one area of the country to another. A relocation service will manage home sales and purchases in another ...
Have a question or comment?
We're here to help.