What Is the 30/30/3 Rule in Home Buying? Here’s What to Know

Many want to own properties, but not everyone can afford them. When buying a home, finance experts recommend following the 30/30/3 Rule. But what is it?

All of us want to have our own properties, but not all of us can easily afford one. And those who can afford homes all have different financial capabilities that either widen or limit the choices that we have on the market.

However, regardless of the choices available, there are certain near-foolproof ways that one can purchase a home without causing any financial backlash or having any regrets about it. Any decent and trustworthy mortgage lender will tell you to know these can be quite helpful, especially in a pandemic.

One of them is called the 30/30/3 Rule. This article will take a look at what it is and how a home buyer should ideally go about purchasing a home, whether we’re in a pandemic or not. 

What is the 30/30/3 Rule?

Mortgage rates have reached pandemic-induced all-time lows as real estate demands go up. This scenario paints a beautiful picture that could be very tempting for homebuyers at this time. However, just because it looks pretty on the outside doesn’t mean it’s always a good thing. It might work for some but might have different repercussions on others. Case in point, a lot of homebuyers overextended themselves back in 2008’s financial crisis, which a lot of them regretted. Valuable lessons were learned but at a huge cost.

No one wants another nasty episode like that. For this reason, most finance experts recommend going by the 30/30/3 Rule when it comes to buying real estate.

Simply stated, the 30/30/3 Rule is a three-part rule that homebuyers should do their best to apply when shopping for a property. If the three parts are considered and implemented in the decision, it will protect the home buyer and give them peace of mind and a stronger sense of financial security.

Rule 1: Your monthly mortgage payment should not exceed 30% of your gross income.
Typically, finance experts and real estate professionals advise that monthly mortgages should not go beyond 30% of a person’s gross income. However, the pandemic has caused mortgage rates to decline, which many folks think is a sign that it’s okay to go beyond 30%.

The idea is this: when the rates are lower, your spending power is greater even if you keep it at that fixed number. Your 30% is now stretched further, and it now affords you to cover more ground. But because of this, the temptation to buy a better house that’s slightly more expensive is genuine and could be very dangerous.

Let’s say your annual gross income is $50,000. If you take 40% of it to buy a house, you still have $30,000 left. It might seem okay, but if you divide that by 12, you’re down to $5,000 a month. At $2,000 a month on a mortgage, you might not have enough for your other needs.

It is still better to be on the safe side. The more pressed you are financially, the less you should spend.

Rule 2: Have at least 30% of the home’s value set aside in cash.
Now, if you have enough money lying around to pay for a property in cash and you won’t struggle financially, go on and do so. However, most regular folks don’t have that kind of money in their bank accounts.

Before making any purchases, make sure that you have at the very least 30% of the property’s value either saved up in cash or low-risk assets. 20% of that will be used as a down payment to help you get the best possible mortgage rates available and avoid having to pay private mortgage insurance. The other 10% is set aside as a buffer for incidental expenses.

Rule 3: The property’s price should be no more than 3 times your annual gross income.
Let’s do simple math here. If you’re earning $100,000 annually and financially stable, you can afford to purchase a $300,000 property. If you’re earning $500,000, then a $1,500,000 home is okay for you. If you’re a top earner and bring home $1,000,000 annually, you can buy real estate that costs up to $3,000,000.

However, you don’t need to go all the way. If you can get a property that’s less than 3 times your annual gross income, then the better it is for you, especially during these uncertain times. While mortgage rates are low, investing in real estate that’s far more expensive also brings higher debts, maintenance expenses, and property taxes.


These are just some of the things that you should learn about. If you’re still unsure how to go about it, you can reach out to a reputable real estate agent or an expert finance specialist to be properly educated. This way, you can make well-informed decisions about a house purchase.