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In order to qualify for a mortgage on this home – which would be priced at $303,000 at the national level – Zillow estimates that a buyer would need to earn a minimum estimated annual income of $45,260.
This estimate assumes that the loan is a 30-year, fixed-rate mortgage with a 10% down payment and a 4.5% interest rate, and considers the restrictions given by 43% debt-to-income ratio rules, which prohibit borrowers from accumulating debts that exceed 43% of their monthly income.
That's near 7x your salary. Who in their right mind thinks that is ok.
What happened to the old guideline of 2.5x your salary ?
That would be just stupid. Factor in all the other real expenses that a real family has and all it takes is a couple of bad months. Heat goes out. Broken water line. Transmission on car. Braces for a kid. Any big expense. Heck I wouldn't buy that much house on my current salary even assuming I had 30 more years of working before retirement.
Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by Hemlock140
Where, though, will anyone making that much (or more) find a new house for $300,000? Certainly not around here. I laughed aloud in the car when I heard a radio commercial for a mortgage company talking about their new 1% down loans.
They actually gave the example that you only need $1,500 down on a $150,000 house. This is in Seattle, where the lowest priced fixer condo would be double that, and the median house is $722,000. Zillow and others should not make generalizations based on national data, it just doesn't fit that many people.
Out in my area if you drive about 20 miles out you can get new homes for 300k.
Back in my old town Seattle looks down right affordable.
I suspect that what stops most people from buying is that they can't save up the down payment. Even with a no down payment loan, it takes $5,000 or so in closing costs. Too many people can't even come up with that.
Rent and mortgage payment for identical properties tend to be very close to the same amount. Landlords aren't getting houses for free. Rent has to cover the mortgage. So if a person can make their rent payment, they should be able to make the mortgage payment on the same quality of house.
Almost 20k in closing costs here in NY. There are numbers and calculations and then there are real world figures. You can make 45k and afford that loan IF your rich uncle left you the down payment and the closing costs and furniture and a few grand for emergency expenses.
It's going to be highly unlikely someone making only $45,000 can save the $30,000 in a reasonable time frame. I live in northeast TN. The cost of living here is generally low. With that said, you're not going to find anything but a rural trailer with a rent below $500/month. For anything nicer or newer, you are looking at $700-$800 for a 1/2BR apartment. Houses are a bit more. It's going to take a long time to save $30,000 after tax just with routine bills, let alone if the person has any other debt.
This is well beyond a stretch, and assumes basically a perfect scenario. No maintenance, kids, or much outside the home.
The closing costs, furnishing, maintenance, all of that is valid. However, if you're renting, the landlord may not always repair an item if it is not critical, and will almost never repair to a standard an owner-occupant would. The air conditioning on my last apartment in Indiana was terrible. The landlord "fixed" it, but the 900 sq. ft unit could barely hold at 75 in the summer. This is Indiana - not Phoenix where the AC would struggle.
The old rule is never buy a house that's more than 2.5 to 3 times your gross income. Even with "today's ultra low interests rates!" that still doesn't change, IMHO, because we also have lousy wage growth, no pensions, ultra low job security, and high prices in other key areas (healthcare, education, etc.) that keep skyrocketing.
So, Zillow is out of their minds if they think people should be taking on a debt load of close to SEVEN times their gross income. Of course, they have an agenda - to sell more homes and keep this accursed lingering housing bubble rolling along forever - maybe, someday, people will forget what "affordable" actually means and just be content handing over most of their income to the bank. Maybe once nobody can afford the home they are in, somehow it'll all work out... or some nonsense.
This crap has really heated back up over the last year or so. Real estate markets in this country are, broadly, diverged into about three camps.
1) Coastal areas and a handful of interior metros (Denver, Austin, Nashville come to mind) where housing prices and rents are greatly outpacing inflation. To different degrees, most of these metros are unaffordable on the prevailing local median wages for new entrants into the real estate market.
I make $60,000 annually. That's more than the Nashville median household income as a single guy. Yet if I want to rent in a core urban neighborhood, I better be ready to shell out at least $1,200, pushing $1,500 for a 1BR in the hippest neighborhoods. That's doable if other expenses are kept low, but I'm above average income. What about those not so fortunate?
2) Mid-priced interior metros where jobs are still plentiful but the cost of living is lower. Think Indianapolis and St. Louis. Often these cities aren't as popular or have other issues, but housing generally tracks inflation or slightly around it.
3) Small towns and rural areas. Jobs are often hard to come by, there are few newer homes available, and wages/home prices are low, but often a worse ratio than #2.
Quote:
Originally Posted by jaynarie
Thanks, Zillow. You will be to blame if a bunch of idiots go over extend themselves.
I will pay my car off in December. That will leave me with only my student loans left, around $15K. Since I earn more than the chart's max, they are saying I could afford a $600K+ home. Um, no. I tend to be budget conscious and there is no way I would be comfortable with a mortgage that high.
I lived in an area where rent for a 1 bedroom apartment was more expensive than a 3 bedroom house, so the first time I purchased I felt uncomfortable. I had a $113K mortgage and a $30K salary. While I make significantly more now, I never wanted that feeling again. I did not want to wait to save a down payment, so I kept the budget low. My loan is under $100K. To owe six times that is insane.
Not necessarily. Depending on the area, that $600,000 house is going to end up with a lot more equity in it than the $100,000 house. People use leverage to increase home equity as well. Proportionally, I don't know which will do better, but a $100,000 house, even low cost of living areas, is often small, in a bad area, needs work, or some combination thereof.
Where, though, will anyone making that much (or more) find a new house for $300,000? Certainly not around here. I laughed aloud in the car when I heard a radio commercial for a mortgage company talking about their new 1% down loans.
They actually gave the example that you only need $1,500 down on a $150,000 house. This is in Seattle, where the lowest priced fixer condo would be double that, and the median house is $722,000. Zillow and others should not make generalizations based on national data, it just doesn't fit that many people.
Metro Seattle is so far out of touch with the interior of America that many of the same standards cannot even be used.
I lived in Indianapolis for three years. Depending on the area, you can find new construction for well under $200k.
Not necessarily. Depending on the area, that $600,000 house is going to end up with a lot more equity in it than the $100,000 house. People use leverage to increase home equity as well. Proportionally, I don't know which will do better, but a $100,000 house, even low cost of living areas, is often small, in a bad area, needs work, or some combination thereof.
In my immediate area (within 20 miles), there isn't much over the 400-500K range. Most homes fall in the 200-300K range. Due to low inventory, I bought in the next town over from where I wanted to be. Schools aren't as good, so houses are cheaper. I owe about $96K now (paid a bit over 100K), but I have a meticulously cared for 1400 square foot house, with a 3.5 car garage, finished basement, 1 acre lot backing up to woods, 2 fire places, full landscaping (previous owners have to have 10-20K into that alone), etc... I bought an over improved house for a bargain. This house in the other town would be at least double, if not more. (And I am only 2 miles from the border of the other town.)
I should also own my house outright in 10 years. Less, depending on how hard I push. If I had a 600K mortgage, I would have to be extremely frugal in every way, and I would carry that heavy burden for 30 or more years (likely more due to a refi). At the end of the decade, I'd have about $100K in equity, assuming property values held. I'd be equal to what I will have with my house. Only with what I have now, I would not have to be as budget-conscious. If I wanted to really be frugal and push, I could pay it off in about 4 years. *Actually, I put the $600K mortgage payment (without taxes and insurance- just principal and interest) into an amortization calculator. Maturity of February 2021. A little over 3 years. So, I pick owning my home outright in less than 3.5 years, having $100K in equity. The $600K home would give me only around $40K in equity in that time frame. (To make it easier, I'm ignoring the down payment in both and looking at loan balances only.) Plus, a $600K house is hard to unload in my area. When I bought my house they had multiple offers. It listed on Friday and I had it under contract on Tuesday.
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