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Indeed. 1 out of every 4 mortgages is underwater now. Underwater = balance is greater than worth of the house. Following what these people did does not seem to be very prudent even though I am sure that on the way to do this, they were convincing themselves they were doing a smart thing.
As soon as you start looking at the maximum payment you can handle, you have lost the battle as you are already caught in the trap.
My input, although this horse has already been beaten close to death: the OP is cutting it waaay to tight with a mortgage that high. I'd scale it back to looking at houses in the $250K - $350K range.
If you were a yuppie couple who aren't going to have kids, I don't think you're overextending yourself at all with this purchase.
But it sounds like you're both working and you want to have kids and then quit your job. On one income, this is overextending yourself. Your expenses will go up a lot in addition to your income dropping. That can be a really challenging combination.
That said, 33% of gross income on PITI is not really that high by lender standards and is not uncommon at all. Doesn't make it right though. The real problem is your expenses as new parents will be quite high compared to before.
If you were a yuppie couple who aren't going to have kids, I don't think you're overextending yourself at all with this purchase.
But it sounds like you're both working and you want to have kids and then quit your job. On one income, this is overextending yourself. Your expenses will go up a lot in addition to your income dropping. That can be a really challenging combination.
That said, 33% of gross income on PITI is not really that high by lender standards and is not uncommon at all. Doesn't make it right though. The real problem is your expenses as new parents will be quite high compared to before.
33% is too high, IMO. I feel pretty strongly about that. Just because lenders are doing it doesn't mean the person can afford it. The lender doesn't care if you have to sit with no furniture and eat cereal in order to pay your mortgage.
33% is too high, IMO. I feel pretty strongly about that. Just because lenders are doing it doesn't mean the person can afford it. The lender doesn't care if you have to sit with no furniture and eat cereal in order to pay your mortgage.
I spoke with a lender 6-7 months ago who said 41% is normal/ok and they would write up to 50% in certain circumstances (yes this is AFTER the credit crisis). The impression I got was if you were "only" 33% you'd be below average in terms of how much of your income went to a home. Crazy huh?
I find it somewhat laughable that people think consumers have actually learned their lesson.
I spoke with a lender 9 months ago who said 41% is normal/ok and they would write up to 50% in certain circumstances (yes this is AFTER the credit crisis). Crazy huh? The impression I got was if you were "only" 33% you'd be below average in terms of how much of your income went to a home.
That might be a lender's point of view but yikes... 25% would be my absolute max if I was buying.
To TurtleCreek80, I had to laugh at your anger that "some men" haven't yet figured out that women can have high-paid careers.
I might wear comfortable shoes, but I'm not a guy. Feminist from way back when, and I know plenty of women with useless bachelor's degrees, or who have stayed home with kids without a significant work background, and they are one man away from welfare.
All I did was note that the OP hadn't included childcare in the budget discussion.
That might be a lender's point of view but yikes... 25% would be my absolute max if I was buying.
I think total debt being 25-30% (depending on tax bracket, children, etc.) of the maximum is a good amount, including house, cars, student loans, etc. If people have significant liabilities such as cars, grad school loans, then 25% could be too high. If people are childless (and plan to stay that way) without tons of tax liabilities and no debt, then I think it's okay to go to 30% in many cases. I agree with you in general though.
One thing I think people on this forum need to understand is they are significantly more conservative than most people and the standards in the market are way different. That said I think most of this forum is quite smart/correct in their conservatism but at the same time it needs to be understand that it's not normal behavior.
I go with the notion that you should purchase your house based on the assumption that the lesser of the 2 incomes will be financing it. Since in your case this is 62K, then you cannot afford this house. However, if you put down a larger downpayment (eg 50%) or paid for the house outright in cash, then it might be a go.
I spoke with a lender 6-7 months ago who said 41% is normal/ok and they would write up to 50% in certain circumstances (yes this is AFTER the credit crisis). The impression I got was if you were "only" 33% you'd be below average in terms of how much of your income went to a home. Crazy huh?
I find it somewhat laughable that people think consumers have actually learned their lesson.
"I spoke with a lender..." There's your problem right there. Are you talking about gross income ratios? If so, that's insane.
If you're borrowing as much as a bank is willing to lend you, you're borrowing too much.
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