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
Predetermined price for a contract that will be the same irrespective of the actual costs incurred to complete it. This contract is advantageous to the buyer because he knows beforehand ...
Also called earnest money. Money deposited with an individual for security for the performance so some contract. This is intended to show his/her willingness to follow through with the ...
The definition of property acquisition cost in real estate is the total recorded cost of a piece of real estate after reductions in price, incentives, closing costs and any other ...
Stated rate of interest on the face amount of a loan or installment note. ...
Location Analysis is the appraisal of a general geographic area for a particular use. A Residential Real Estate Market professional (or consumer) rarely deals with a Location Analysis ...
Process determining an individual's financial ability to meet the terms of a loan. When selling real estate, the sales broker must qualify the buyer to make certain he/ she has the ...
Thin wood that is shaped in a wedge and laid together in rows. An example is a roof on a house. ...
Generally, a statute of frauds means a legal provision outlining that essential contracts, vulnerable to misrepresentation, must be fixed in a written form to be enforceable. Although ...
Percentage of a geographic location's population to the number of persons employable by a basic industry in that area. A basic industry is one that draws income from outside the locality ...
Have a question or comment?
We're here to help.