BUYING A HOME IN YOUR 20s or 30s?

Thinking about buying a house? In your 20s or 30s, this might feel both exciting and a bit overwhelming, especially with today’s housing prices. But here’s a secret to help you start: the 28/36 rule. This simple budgeting guideline can make sure you’re set up for success without feeling financially stretched. Let’s dive into this cheat sheet and break it down in easy steps!

Step 1: Calculate Your Monthly Income for Budgeting

Budgeting starts with knowing how much you can afford comfortably each month. Here’s a quick method to help you calculate a recommended monthly mortgage payment:

Take your pre-tax salary.
Add your partner’s pre-tax salary (if applicable).
Divide the total by 12 (for monthly income).
Multiply that number by 0.28.

This gives you a rough idea of what 28% of your gross monthly income looks like. The idea here is that your housing payment shouldn’t exceed this amount.

For example, if you and your partner make $120,000 annually combined, you’d divide that by 12, getting $10,000 monthly income. Multiply that by 0.28, and you get $2,800 as a recommended limit for your mortgage payment. This calculation helps keep your monthly payment manageable and within budget.

What is the 28/36 Rule?

The 28/36 rule is a financial guideline that can help you budget effectively for your mortgage and total debt. Here’s how it works:

28%: The portion of your monthly income that should go toward housing costs, including your mortgage, property taxes, and insurance.
36%: The total portion of your monthly income that should go toward all debts—this includes your mortgage, car loans, student loans, and any credit card payments.

This rule, created decades ago, was designed to help people buy homes without getting too financially stretched. While today’s housing market has changed a lot, the 28/36 rule is still a great starting point, especially for first-time buyers trying to create a comfortable budget.

Why Should You Stick to 28%?

Lenders might approve you for a mortgage that’s higher than 28% of your income. So why should you aim to stick to this rule? It’s simple: your financial comfort matters more than what a lender says you can afford. Just because a bank offers you a bigger loan doesn’t mean it’s the best choice for you. Staying within 28% helps ensure you’ll have room in your budget for other life expenses, emergencies, and even fun!

Debt Beyond the Mortgage: Understanding the 36% Limit

Housing is just one part of your monthly financial picture. The 36% rule accounts for all your debt obligations combined. So, if you have a car loan, student loans, or credit card payments, make sure these don’t push your debt payments above 36% of your monthly income.

If you’re carrying a bit more debt, you may need to adjust your housing budget accordingly. The 28/36 rule gives you a solid foundation, but flexibility is key—especially if you have other financial goals, like saving for retirement, travel, or future family expenses.

Adapting the 28/36 Rule to Today’s Reality

The 28/36 rule is a great guide, but let’s be honest: it was developed in a very different time. Housing prices, student debt, and overall costs have risen, which means this rule might need a few adjustments to suit today’s market. Here are some tips to make it work for you:

Consider Your Lifestyle: If you’re big on travel or planning for early retirement, you might want to keep your housing costs even lower.
Factor in Extra Costs: Homeownership often means expenses like maintenance, repairs, and home upgrades. Add a buffer for these costs in your monthly budget.
Prioritize Your Comfort Level: Even if you qualify for a higher mortgage, think about your monthly comfort. Would you rather have extra spending flexibility? Let that guide your decision more than a pre-set rule.

Your Guide to Comfortable Homeownership

As you budget for your new home, think of the 28/36 rule as a starting point, not a hard limit. Your home should be a place that adds value to your life, not a source of financial stress. By keeping your mortgage within 28% of your monthly income and your total debt under 36%, you’ll create a balance that supports both homeownership and a fulfilling lifestyle.

Before you jump in, take a moment to envision what “comfortable” means to you. Your budget isn’t just numbers—it’s about creating a home within your means, where you can thrive and enjoy all the other parts of life.

Buying a home in your 20s or 30s is an exciting milestone, and with the right planning, it can also be financially smart. Stick to the cheat sheet, keep your goals in focus, and remember: your financial journey is yours to define!