The 28% Rule: A Simple Guide to Home Affordability

When buying a home, it’s easy to get caught up in the excitement, but it’s crucial to stay grounded and focus on what you can truly afford. One important guideline to follow is the 28% rule, which recommends that your monthly housing costs should not exceed 28% of your gross monthly income. This includes not just your mortgage payment, but also property taxes, homeowners insurance, and any HOA fees. For example, if your monthly income is $4,000, the maximum housing payment you should aim for would be $1,120.

Why Follow the 28% Rule?

The 28% rule helps ensure that your housing costs remain manageable and that you don’t overextend your budget. By sticking to this guideline, you’ll be able to maintain financial flexibility, avoid stress, and still have room for other important expenses like savings, transportation, and personal goals. It’s a simple yet effective way to safeguard your long-term financial stability.

15-Year vs. 30-Year Fixed Mortgages: Pros and Cons

When it comes to selecting a mortgage term, you’ll typically have two popular options: the 15-year fixed and the 30-year fixed. Here’s a quick breakdown:

• 15-Year Fixed Mortgage
  • Pros:
    • Pay off your home faster, saving on total interest paid.
    • Typically lower interest rates.
    • Build equity more quickly.
  • Cons:
    • Higher monthly payments.
    • Less financial flexibility for other expenses.
• 30-Year Fixed Mortgage
  • Pros:
    • Lower monthly payments, freeing up cash for other needs.
    • More financial flexibility.
  • Cons:
    • Pays more in interest over the life of the loan.
    • Slower equity buildup.

Ultimately, the best choice depends on your budget and long-term financial goals. If you can afford higher payments, a 15-year mortgage could save you a lot on interest. However, if you prefer lower monthly payments for more flexibility, the 30-year option might be better.