Lenders use the 28/36 rule to assess borrowers’ ability to manage their liabilities, including consumer debts and mortgages. The American middle-class can use it to get out of debt and live within their means.
Numerous issues are affecting the American middle class. Savings and personal income are chiefs amongst them.
25% of adult Americans have no retirement savings, and more than half of them have less than three months’ worth of expenses put away in an emergency fund.
The American middle class is overworked and over-leveraged. Adopting the 15/28/36 rule can help them get their proverbial financial head above water.
The rule states that 15% of net income and 28% of gross income should go to consumer debt and mortgage. Monthly payments on all debs should not exceed 36% of a household’s monthly gross amount.
The median household income was $67,521 in 2020, which means that$18,906 or less should go to the mortgage.
As of this writing, the national median home sales price is $374,000 meaning the mortgage payment will be $16,728 per year or $1,394 per month, with the homeowner putting 20% down ($74,800) and financing the home at a 3.80% interest rate for 30 years.
The mortgage payment does not include property taxes, home insurance, and HOA fees.
How The American Middle Class Is Doing
American middle-class families have gone through the Dot.com burst, the 2008-09 Financial Crisis, the Covid-19 pandemic, and the resulting economic recession in two decades.
Moreover, they are going through the worst housing affordability crisis right now. They have been stretched financially.
Industries have been birthed to capitalize on the financial suffering of the middle class. For instance, buy now pay later, or BNPL is now a $100 billion industry, and it expects to process $680 billion in transaction volume worldwide by 2025.
For a fixed monthly fee, “buy now pay later” companies such as Chime, Klarna, and others let consumers pay off their large purchases over time.
The American Middle-Class personal balance sheet might make following the 28/36 rule difficult. However, they have no choice but to follow the rule if they want to get off the finance hamster wheel.
