3X the rent versus 40 times the rent?

6 Replies

I had always done the 3X the rent rule for what I can afford for a mortgage and for my tenants. For example  $2000 x 3 = $6000 (monthly income required to keep housing payments less than 1/3 of income)  $6000 x 12 months = $72,000 (annual income required to keep housing payments 

I just recently read this article 

http://www.businessinsider.com/7-simple-steps-to-d...

And they are talking about 40 times the rent. I'm also not the best at math but going by different rules you can afford a lot more with 3X the rent versus 40 times the rent. What do you guys think is the best way to determine what someone/ even yourself can afford?

The actual number I'm looking at for someone is they make $123,000 a year. 

 According to the 3X rule it would look like this-  $3,400 X3= 10,200    10,200 X12 = $122,400 (close enough)  so they can afford $3,400 a month.

According to the 40 times rule it would look like this - $123,000/40 =$3,075 

That's a $325 difference in monthly rent. I guess which isn't huge. I just wasn't sure which  rule of thumb is the best to use and which one most people go by. Even for a few hundred dollars it all adds up. Thoughts?

You have to make sure that you look at their whole credit situation as a whole, on top of the money they are making. They might qualify for 3x or 40x the rent but might also have 500k in debt that eat away at that lovely 40x number that you just looked over. The 3x rule is only a starting guide. Make sure everything else makes sense also. 

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