one-third rule

Definition

Used as a rule-of-thumb to determine the price that a homebuyer can afford. The monthly payments on the mortgage amount should not exceed one-third of the net salary of the individual(s) obtaining the loan. Some economists believe that the one-third should be based on all housing expenses not just mortgage payments. For example, a net salary of $100,000 will allow the payer to afford a mortgage loan (or housing expenses) with yearly payments of $30,000.
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