Mika
VIP Contributor
If you are planning to buy a house for yourself, and if you are not sure whether you should buy it or not, follow this simple 5, 20, 30 40 rule.
What exactly is the rule of 5, 20, 30, and 50 in real estate?
The rule of 5: This rule implies that the house you want to buy should not cost you more than 5 times your annual salary. Let’s say your annual salary is $100,000. The house should not cost you more than $500,000.
The rule of 20: If you are financing your house through a loan, your loan term should not be more than 20 years.
The rule of 30: Your monthly house loan repayment should not exceed 30 percent of your monthly salary.
The rule of 50: Your total loan repayment including your house loan, credit card bills, auto loans, and personal loan should not exceed 50 percent of your monthly salary.
If you see your finance matching these rules, don’t attempt to buy a house.
What exactly is the rule of 5, 20, 30, and 50 in real estate?
The rule of 5: This rule implies that the house you want to buy should not cost you more than 5 times your annual salary. Let’s say your annual salary is $100,000. The house should not cost you more than $500,000.
The rule of 20: If you are financing your house through a loan, your loan term should not be more than 20 years.
The rule of 30: Your monthly house loan repayment should not exceed 30 percent of your monthly salary.
The rule of 50: Your total loan repayment including your house loan, credit card bills, auto loans, and personal loan should not exceed 50 percent of your monthly salary.
If you see your finance matching these rules, don’t attempt to buy a house.