As the world is waiting for an effective Coronavirus vaccine the real estate market demands are going up once again.
The mortgage rates are recording all-time lows, according to recent reports. Hence, there is a concern that who’s buying the real estate?
According to Financial Samurai, 30-year fixed mortgage rates are below 3% which might entice more people to buy home. The report from Financial Samurai claimed that tech employees are willing to buy or upgrade homes since most of the big tech companies are doing well amid the pandemic.
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A 3% mortgage also became a piece of cake for those who gained exponentially from the tech stocks. They want to utilize the real estate lower prices to diversify their portfolio.
So today, in the time of confusion a 30/30/3 rule can change the entire real estate game for you. Stress can be reduced by following at least one of the following three rules.
Rule 1: Spend Less or Equal to 30% of Your Gross Income
The monthly mortgage shouldn’t cross the 30% benchmark of the gross income. This rule might create a dilemma when the mortgage rate goes down. The temptation to increase the spending above 30% of your gross income is real.
But if you go above 30% the cushion for basic needs will reduce significantly.
Rule 2: Save 30% of the Value in Cash
This decision must be taken before buying the home. Save at least 30% of the home value in cash form or any other asset that has lower risk.
Out of the 30% savings, 20% will be allocated for the down payment, and 10% for the health benefit buffer.
Rule 3: Real Estate Price Shouldn’t Exceed 3 times of Annual Gross Income
The final rule is keeping the price within an affordable range. The value of the house shouldn’t exceed 3x of your gross income.
Considering the down payments it can save you from a stretch even with a down payment that is too high.
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The Bottom line is that the 30/30/3 rule can be a great way to exploit the current real estate market situation. This gives a greater discipline when investing in real estate.
Stretching the finances to buy a new home can impact other sectors like lifestyle costs, taxes, insurances, etc.
