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Old 07-17-2018, 07:32 AM
 
Location: Connecticut
524 posts, read 322,004 times
Reputation: 514

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Quote:
Originally Posted by CTartist View Post
No kidding....people have different financial situations ALL OVER THE COUNTRY and not just here lol.

I was a mortgage banker......please go to my post #136 where I explain the formula for the affordability of a house.

First Threshold to qualify for a mortgage is 28% for mortgage and taxes.
Second Threshold for to qualify for a mortgage is 33% for mortgage, taxes, insurance, utilities and other debt.

So....with Fairfield County's median income $86,670* someone is buying these median $413,000* houses.......and having babies to boot lol.

This is why I hate Fairfield County...."the Joneses" think everyone makes their incomes and if you don't you should not have children.

* https://www.census.gov/quickfacts/fa...t,ct/PST045217
The formula banks use for the affordability of a house is one of the reasons for the housing crisis. Taking 28-30% of gross income on what someone can afford for a house is disingenuous and dangerous. With an effective tax rate (after deductions) of 15% on a 100k income, minus reitrement savings (say 5%) and health insurance for a family (say another 5k) they are already down to 75k take home. That takes your $2333 to pay for mortgage (at 28% of gross) and taxes a month down to $1750/month (28% of net). That doesn't even factor any other debts. If you live in a place where property taxes are $8000 a year you now can only afford a mortgage of $1083 a month which is what?-- a ~230,000 mortgage after down payment?
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Old 07-17-2018, 07:46 AM
 
Location: Coastal Connecticut
21,475 posts, read 27,712,350 times
Reputation: 6659
Quote:
Originally Posted by synchem View Post
The formula banks use for the affordability of a house is one of the reasons for the housing crisis. Taking 28-30% of gross income on what someone can afford for a house is disingenuous and dangerous. With an effective tax rate (after deductions) of 15% on a 100k income, minus reitrement savings (say 5%) and health insurance for a family (say another 5k) they are already down to 75k take home. That takes your $2333 to pay for mortgage (at 28% of gross) and taxes a month down to $1750/month (28% of net). That doesn't even factor any other debts. If you live in a place where property taxes are $8000 a year you now can only afford a mortgage of $1083 a month which is what?-- a ~230,000 mortgage after down payment?
My new home’s mortgage payment with insurance and taxes is 18% of my gross. That’s comfortable but I can’t imagine doing 30%. And I really can’t imagine it with multiple kids.
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Old 07-17-2018, 08:36 AM
 
Location: Connecticut
524 posts, read 322,004 times
Reputation: 514
Quote:
Originally Posted by Stylo View Post
My new home’s mortgage payment with insurance and taxes is 18% of my gross. That’s comfortable but I can’t imagine doing 30%. And I really can’t imagine it with multiple kids.
Mine is down to 15% now. But with 3 kids (two decided to come at once), student loans (both me and the wife), health insurance, retirement savings, pre-K enrollment etc. etc. I'm still not as comfortable as I'd like to be, mainly because student loan payments are the same as my mortgage payment.
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Old 07-17-2018, 08:42 AM
 
24,503 posts, read 17,956,220 times
Reputation: 40189
Quote:
Originally Posted by synchem View Post
The formula banks use for the affordability of a house is one of the reasons for the housing crisis. Taking 28-30% of gross income on what someone can afford for a house is disingenuous and dangerous. With an effective tax rate (after deductions) of 15% on a 100k income, minus reitrement savings (say 5%) and health insurance for a family (say another 5k) they are already down to 75k take home. That takes your $2333 to pay for mortgage (at 28% of gross) and taxes a month down to $1750/month (28% of net). That doesn't even factor any other debts. If you live in a place where property taxes are $8000 a year you now can only afford a mortgage of $1083 a month which is what?-- a ~230,000 mortgage after down payment?

28% of your gross for mortgage, property taxes, and insurance is fine for a starter home for someone on the upward part of their career where they're getting raises and promotions. Between inflation and raises/promotions, that 28% fraction will drop fairly quickly. The problem is when people who have already flattened out in their careers extend themselves that much.



In your math, that person making $100K had better be saving 18.5% for retirement or they're going to be living under the railroad bridge eating dog kibble when they age out of being able to work. 5% is a recipe for disaster. At $100K, you're also paying 7.65% in payroll taxes for FICA/Medicare. Their net on $100K is more like $65K.
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Old 07-17-2018, 09:25 AM
 
Location: Connecticut
524 posts, read 322,004 times
Reputation: 514
Quote:
Originally Posted by GeoffD View Post
28% of your gross for mortgage, property taxes, and insurance is fine for a starter home for someone on the upward part of their career where they're getting raises and promotions. Between inflation and raises/promotions, that 28% fraction will drop fairly quickly. The problem is when people who have already flattened out in their careers extend themselves that much.



In your math, that person making $100K had better be saving 18.5% for retirement or they're going to be living under the railroad bridge eating dog kibble when they age out of being able to work. 5% is a recipe for disaster. At $100K, you're also paying 7.65% in payroll taxes for FICA/Medicare. Their net on $100K is more like $65K.
Yea that makes it worse. That 28% of gross now turns into 43% of Net at 65k take home.
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Old 07-17-2018, 09:27 AM
 
Location: Connecticut
34,634 posts, read 56,369,388 times
Reputation: 11145
Quote:
Originally Posted by synchem View Post
The formula banks use for the affordability of a house is one of the reasons for the housing crisis. Taking 28-30% of gross income on what someone can afford for a house is disingenuous and dangerous. With an effective tax rate (after deductions) of 15% on a 100k income, minus reitrement savings (say 5%) and health insurance for a family (say another 5k) they are already down to 75k take home. That takes your $2333 to pay for mortgage (at 28% of gross) and taxes a month down to $1750/month (28% of net). That doesn't even factor any other debts. If you live in a place where property taxes are $8000 a year you now can only afford a mortgage of $1083 a month which is what?-- a ~230,000 mortgage after down payment?
You are wrong in the way you are calculating what a family can afford. While it is true that banks will approve up to 28% of a family's income for housing, you are ignoring the second part which says they will not approve more than 36% total debt for a buyer. So if you have student loans and car loans and credit card debt, those are all taken into account in calculating what a family can afford.

Also note that these limits are NOT what caused the financial crisis 10 years ago. Those limits were around for decades and proved themselves to be sound. It was ignoring those limits and qualifying families who were borderline stable to begin with. Then the companies were allowed to package those mortgages as high quality investments when they were junk. The more sound loans were held back and kept by the lending institution. Jay
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Old 07-17-2018, 09:44 AM
 
24,503 posts, read 17,956,220 times
Reputation: 40189
Quote:
Originally Posted by JayCT View Post
You are wrong in the way you are calculating what a family can afford. While it is true that banks will approve up to 28% of a family's income for housing, you are ignoring the second part which says they will not approve more than 36% total debt for a buyer. So if you have student loans and car loans and credit card debt, those are all taken into account in calculating what a family can afford.

Also note that these limits are NOT what caused the financial crisis 10 years ago. Those limits were around for decades and proved themselves to be sound. It was ignoring those limits and qualifying families who were borderline stable to begin with. Then the companies were allowed to package those mortgages as high quality investments when they were junk. The more sound loans were held back and kept by the lending institution. Jay

I don't see how it's "wrong". 28% for mortgage/taxes/insurance is indeed right at the practical limit of what most people can handle. If you want to nitpick, stable job history and credit rating also factor into the equation. None of that changes anything about a discussion on housing affordability. $100K in income and $8K in property taxes means you're not going to be able to afford much of a mortgage.
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Old 07-17-2018, 10:08 AM
 
Location: Connecticut
524 posts, read 322,004 times
Reputation: 514
Quote:
Originally Posted by JayCT View Post
You are wrong in the way you are calculating what a family can afford. While it is true that banks will approve up to 28% of a family's income for housing, you are ignoring the second part which says they will not approve more than 36% total debt for a buyer. So if you have student loans and car loans and credit card debt, those are all taken into account in calculating what a family can afford.

Also note that these limits are NOT what caused the financial crisis 10 years ago. Those limits were around for decades and proved themselves to be sound. It was ignoring those limits and qualifying families who were borderline stable to begin with. Then the companies were allowed to package those mortgages as high quality investments when they were junk. The more sound loans were held back and kept by the lending institution. Jay
If you couple what a bank says someone can "afford" with 5/1 arm rates and relaxed down payment requirements it all leads up what happened. Being allowed to packaged bad mortgages as investments is secondary to the initial problem. It's also easy to skirt the debt portion of that if you can get all your debt onto a credit card, since the monthly minimum payment is all that is counted as opposed to a fixed loan on a car or something else.
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Old 07-17-2018, 10:33 AM
 
Location: Coastal Connecticut
21,475 posts, read 27,712,350 times
Reputation: 6659
Quote:
Originally Posted by synchem View Post
If you couple what a bank says someone can "afford" with 5/1 arm rates and relaxed down payment requirements it all leads up what happened. Being allowed to packaged bad mortgages as investments is secondary to the initial problem. It's also easy to skirt the debt portion of that if you can get all your debt onto a credit card, since the monthly minimum payment is all that is counted as opposed to a fixed loan on a car or something else.
That was also a time when minimum CC payments were unregulated and so low that it literally would be impossible to pay off.
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Old 07-17-2018, 10:34 AM
 
465 posts, read 522,777 times
Reputation: 372
Quote:
Originally Posted by Stylo View Post
My new home’s mortgage payment with insurance and taxes is 18% of my gross. That’s comfortable but I can’t imagine doing 30%. And I really can’t imagine it with multiple kids.
Add kid(s), motor vehicle taxes, commuting costs, healthcare, groceries, occasional house maintenance, etc.. quickly adds up to the household living paycheck to paycheck with little to no money being directed to retirement accounts.


Despite being approved for a mortgage at the end of 2010 when more scrutiny was being placed on the approval process I was being thrown a lot more money than I was comfortable spending. Ultimately purchased what I was comfortable with which allowed the flexibility to heavily contribute to retirement accounts and for my wife to take extended unpaid leave when our son was born. Would be a different story if my PITI were 28-35% of my gross.
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