If you’re like most people, it’s been a long time since budgeting was as simple as paying off a couple of bills… In reality, you might feel overwhelmed by all the expenses you have to keep track of every month.
Your mortgage, property taxes, utilities, car payments, insurance, phone bill, and more. It seems like every time you check your mailbox, there’s another bill to be paid.
But as a homeowner, you’ll know that the thing hurting your bank account more than anything is your mortgage payment.
If you’ve been paying it off for a while, it’s easy to forget—you probably want to forget it. Still, there are things you need to pay for, and you’ll probably end up with more debt eventually.
So, if you’re looking to save some cash on your mortgage and/or debt payments, keep reading! We’ll explain the #1 rule of mortgage payments, and some tips to help you save more money than you might expect.
The 28/36 rule is probably the most important rule for you to know, especially if you’re a new homeowner.
Essentially, you should be spending no more than 28% of your gross (pre-tax) income on monthly housing expenses, and no more than 36% of your gross income on housing-related expenses on other debts.
Your lender will use this rule to determine how much to lend to you, but it’s also a great rule for you to live by—it can help you figure out what you can really afford when it comes to taking on debt.
Consider the acronym PITI: principal, interest, taxes, insurance. These factors make up the “front end” part of the 28/36 rule.
Let’s say you’ve got a $275,000, 30-year mortgage with a 3% interest.
Using PITI, you determine that you’ll pay around $949 to your loan principal, $221 to home insurance, and $441 to all of your other mortgage-related taxes and fees.
That brings your monthly payment to $1,680. So, your household pre-tax income needs to be at least $6000 per month:
$1,680 / $6,000 = 28%
Like we mentioned earlier, this 28% ratio is equally important for both you and your lender. If your ratio is way over 28% your lender probably won’t be eager to offer you anything, or you’ll be forced to pay higher interest rates.
And of course, a ratio of more than 28% means you probably won’t be able to reliably afford your mortgage—that’s why lenders use it as a deciding factor!
The 36% portion of the 28/36 rule refers to everything else—all of your monthly debt payments outside of PITI.
So, your credit cards, student loans, car payments, etc. fall into this category.
To get the best possible mortgage (if you’re shopping around for one) or to ensure that you can afford your monthly debt payments, you’ll need to keep your ratio at 36% or below.
Your lender might also refer to this number as your debt-to-income ratio or DTI.
Typically, the golden rule for DTI is that your ratio should be no more than 43%. You can find your debt-to-income ratio by adding up all of your debts and dividing that total by your gross monthly income.
But for the best possible mortgage structure—low interest and lower monthly payments—36% or less is the number to shoot for.
Plus, keeping your DTI at 36% or lower will help you keep money in the bank for emergency expenses, family vacations, and anything else life throws at you.
Every time you apply for a loan from the bank, they’ll request a credit report to determine the risk they’re taking.
Think of it as the first line of defense for your lender.
This is what makes the 28/36 rule so important for getting a good mortgage, and saving money on your mortgage payments.
Your lender will request a hard inquiry, or ‘hard pull’ on your credit score before they decide to lend you any cash. And every time they request a hard inquiry, it’ll affect your credit score.
So, why risk your credit score on a loan that’s not within your budget?
Using the 28/36 rule before you apply will help you find a loan that works for your budget.
The #1-factor lenders consider is your credit score, and losing points on your score will only make it more difficult to get a loan. For more on getting a good mortgage with a low credit score,
No matter what your financial situation is, a robust budget is going to be your friend.
Of course, sticking to a budget is easier said than done—nobody is perfect. But there are some other guidelines you can follow to help keep some money in your pocket.
So, maybe you’ve already heard of the 50/30/20 rule.
Like the 28/36 rule, it’s a great tool for keeping your budget on track.
The idea is, 50% of your budget should go to necessities: utilities, rent or mortgage payments, insurance, car payments, and other debts
30% of your budget should go to the things you want: a family vacation, going out to eat, a new cell phone, etc.
And 20% should go towards investments: any brokerage/investment accounts, your 401(k), savings bonds, etc.
For most people, that 30% tends to be the most challenging part, but sticking to the 50/30/20 rule means a bigger reward (more cash) in the future!
Before you go, there’s one more tip we want to tell you about.
It’ll save you a big chunk of change on your mortgage and other debts because it combines all the strategies we’ve mentioned into a single tool.
Sure, the tips and tricks we mentioned are great ways to save as much money as possible.
But do you have hours each day to check, adjust, and stick to those budgeting rules?
We didn’t think so.
You’ve probably got a job to do, places to be, and a family to take care of. And at the end of a long day, sitting down and relaxing sounds a little bit better than tracking your budget…
So, relax and unwind with your all-in-one financial planner:
The Money Max Account.
It’s a revolution in shaving years off debt payments—it’s already helped people across the nation save $10 BILLION in the mortgage/other debt payments.
Of course, Money Max begins with your budget. It’ll account for all of your expenses, bills, paychecks, and payments.
That means you don’t have to worry about your budget all the time. The Money Max Account works 24/7 to take care of all that for you.
And the cherry on top?
Money Max can help you pay off every single mortgage payment and outstanding debt in as little as 7-10 years!
Say goodbye to a 30-year mortgage, or a 6-year financing plan for your car.
Money Max uses advanced banking software to find you the fastest way out of debt. That means less time worrying about your budget, and more time spending that piece of your budget on the things you want.
Sounds pretty good, right?
We think so too. That’s why we’re working hard to add to that $10 Billion saved, and we want your debt to be a part of it with the Money Max Account.
For more information about taking back your financial freedom, visit our website or give us a call. A United Financial Freedom representative is standing by to answer all of your questions.