Definition of 28/36 Rule
The 28/36 Rule is the rule-of-thumb for calculating the amount of debts that can be taken on by a personal or family.
Brief Explanation of 28/36 Rule
This Rule states that kids should invest a highest possible of 28% of its gross per month earnings on complete real estate costs and no more than 36% on complete debts support, including real estate and other debts such as car loans. This rule is used by home loan companies and other creditors to assess borrowing capacity, the premise being your debts loads in excess of the 28/36 yardstick would be difficult for an personal or family to support and may eventually lead to default.
For example, an personal with a per month earnings of $5,000 who adheres to the 28/36 Rule would be able to invest a highest possible of $1,400 on per month real estate costs, which would include home, property insurance, property taxes and other housing-related costs, such as condo fees. An additional $400 would be available for other debts such as bank card costs and car loans.