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In Southern California you may have no choice but to accept this situation...
but it is still objectively high.
Extremely high. This ratio does not allow for house repair/maintenance costs or savings. I wouldn't consider getting into that mortgage scenario and I'm not sure you'd find a bank that would finance it.
Although the OP originally post this question based on income, I think that approach is spending money just because you can.
I think You shouldn't buy a home for more than a renter is willing to pay for it. Buying for speculation on price lead to walking away from it, but apparently there are people willing to do it. If I need to down size I'll go rent a smaller cheaper place somewhere and let someone more successful pay for my house so my downpayment doesn't go to waste. There are enough renters who can't save a downpayment or don't want to be tied down.
I do know people that have walked away , lost , short sold, foreclose that have put a high % down. People have made bad investment and recent changes let them "walk away" without having to pay taxes on the difference like in the past . I think it is wrong but they were allowed to do it by people who want their votes. Neg Am, balloon payment, contributed , but ultimately it was borrowers who felt the market would just keep going up and wanted easy money.
Well, yeah!
But I was commenting about your contention that
So, you are saying there is a pretty good chance that a lot of people WILL lose their job?
I did not take it that way, but if so, again, that is not the case in my area.
I think over the course of a working lifetime, there are lots of things that reduce incomes:
--If both spouses are working and try to qualify on both incomes, it's pretty likely at least one of them will lose a job at some point. And like I said, it's not that unusual for a laid off person to not make as much in their new job as in their old one.
--Then there's stuff like divorce, disability (even if short term). Those things are expensive.
--Then you have wages that either fall or don't keep pace with the general cost of living. Of course, having a fixed mortgage payment helps, but maintenance costs, property taxes, health care costs, and college tuition are all going up. The latter two have been far outpacing inflation for 30+ years now.
So in short, I think over the course of a working lifetime, the chances are pretty high that at least one of the above major financial setbacks will happen.
I guess I have always been outside the ideal ratios living here in the SF Bay Area.
Most expensive property I bought was about 9 times my income based on purchase price... putting down 40% still put me about 5 times...
The good thing is 10 years later it is paid for.
I've always wondered why income ratios are more important than a proven track record?
Outside of first mortgages, my expenses are extremely low... leaving a lot of discretionary income...
Not everyone has car payments, cable, cell, private school tuition, student loans, credit card debt, dines out a lot or takes expensive vacations...
I agree with you on the track record thing. Bottom line is they want everything standardized with credit scoring. I think it's horrible, but it is the system.
And surely, you know you're the outlier when it comes to having a mortgage 5X your income and paying it down in 10 years. Yes, I know this happens, but not that often (unfortunately).
Strange thing is the 401k people would always be highly visable in an up market... as soon as the market turns the other direction... they all get shuffled around... seen it happen several times now.
It sounds like you have a crappy 401K plan, but not everyone does. Some people have good funds with low to reasonable expenses.
I agree with you that the stock market (all financial markets, really) are manipulated. But the only way to get away from the effects of that is to live in a rural area where you own your own house, grow your own food, live off grid if possible, etc. Tough to do for most of us.
They aren't. I've been beating on that all through the thread.
But also investment properties don't belong in the mix either.
As regards personal affordability... the debt:income ratio is all that matters.
Keep it low.
Well, I get your point (it's about the debt as much as the purchase price) but I'll note that the normal term used by mortgage lenders is PITI (Principal, Income, Taxes and Insurance)
The first two are related to the amount, duration and rate of the mortgage, but the last two are (generally) related to the value of the house. So both come into play, especially in places with high property taxes (2-3% of FMV annually).
FWIW, our "home price to income" ratios have been about 2.5x-3x. We've only put 5-10% down. Our "front end ratio" has been ~21-24%. We've been fine so far, but then we tend to prioritize a "nicer" house over other items. YMMV.
Thanks. It's the same point when using GROSS income vs any other subsequent number
when discussing other financial/budget matters: it evens the playing field when comparing
what are invariably different particulars between people and their situations.
The purchase price, in this context, is almost completely immaterial.
How much is borrowed (vs income) to make it happen is all that matters.
It sounds like you have a crappy 401K plan, but not everyone does. Some people have good funds with low to reasonable expenses.
I agree with you that the stock market (all financial markets, really) are manipulated. But the only way to get away from the effects of that is to live in a rural area where you own your own house, grow your own food, live off grid if possible, etc. Tough to do for most of us.
I'm starting to be intrigued by off grid living...
I have friends in Alaska, Northern California and Santa Cruz Mountains that live off-grid... it is amazing how nice it can be...
The one in Alaska lives off the land much of the year and makes a living as a guide... plus he and his wife get a nice check each year from the State...
Divorce is biggest financial disaster I see among those that were on track... absolutely devastating for some.
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