A topic that often comes up in conversation with buyers is the amount you should spend on rent or a mortgage. A standard across the industry seems to be roughly 30% of your monthly income. After doing a little digging into the "30% rule" I discovered
that it was based on a study done in 1969 that discovered 25% was the average and it inched up to 30% in the '80s. I thought there would be more data to support the 30% but to find out it was based on a study that determined Americans were spending ~25%
of their monthly income. This has carried on through the decades as the standard and it has made average rents skyrocket. This is why we have seen local rents in Auburn, AL rise to a number that outpaces the monthly mortgage for the same property. This
is all good for landlords as their rents have risen, but their mortgage stays the same. The average rent goes up ~3% every year which is more than current inflation.
One of the biggest issues with the 30 percent rule is that it does not take into account your personal situation. You may have student debt that's roughly 8-10% of your income. You have to buy groceries, clothing,ccar, gas, maintenance, and other lifestyle
items that consume your money. The other big item is savings. We love to see people save for their future and retirement. The rule of thumb for savings is 10-15% of your monthly income. It's extremely hard to save when you are spending 30-45% of your
income on rent.
Getting a first time home buyer pre-approved for a mortgage is always fun for us. We see this all the time when we help first time home buyers transition from renting to owning. They are always amazed at what they can afford for the same amount they are
paying in rent. This is a good thing. We are usually able to help a first time home buyer start investing their hard-earned income rather than dumping it into rent where they do not ever see a return on their cash.
Are you ready to buy now? Contact us today to chat about your goals of homeownership. We work with clients that are ready to buy now or within the next 5 years. Getting pre-approved for a mortgage is a gamechanger. Sometimes you find out that you are
doing all the right things with your money and you are good to buy a home, and sometimes we find out you need to do a little bit of work whether that is paying down credit cards, saving more for a downpayment, or working on your credit score to get it
where it needs to be in order to purchase a home.
For a simple consultation and to put you on the right path, reach out to Mary Gail or Alex today. (334) 521-8221. We would love to talk about your next move!