What is the rule of thumb formula for pre-qualifying a buyer?

The rule of thumb for pre-qualifying a buyer is that the total monthly payment should not exceed 28% of gross monthly income. This guideline is commonly used in the real estate industry to help ensure that potential homebuyers are not overextending themselves financially. By keeping monthly housing payments within this percentage, buyers are more likely to maintain financial stability and successfully manage other living expenses.

This percentage typically encompasses the costs of the mortgage payment, property taxes, insurance, and possibly homeowners association fees. It aims to strike a balance between allowing enough financial room for homeownership while also ensuring that buyers retain enough income for other essential expenses, such as utilities, food, and savings.

The other percentages presented tend to deviate from widely accepted standards in budgeting for homeownership. For instance, exceeding 28% may lead to an increased risk of financial strain for the buyer, while a lower percentage might not be practical for many buyers in finding suitable homes.