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I think gross pay is used because The actual numbers look bigger than actual pay
Most people don't even know or check how much in taxes was paid
And if you see a smaller number it may be a negative deciding factor when buying a home
Even though if you make 50k a year you would say to yourself I can easily afford that 180k mortgage. Because without much though we are really thinking it's only 3sx our salary... While reality that a person making 50k can't afford that 180k home, because they would be house poor and won't even save 500 a month.
Is not the same joe buying a 150k house with 50k a year
Vs
Moe buying a 600k house with a 200k salary....
While is the same ratio, life is no much expensive to the person making 200k other than if they decide it. I personally spend like Someone making 60k to 90k a year. It haven't go up just because I make more, even though I want an expensive car and a super nice house I just wait until the right time comes.
Youre inferring that the banks are inflating the applicants numbers to make them qualify, this is the opposite of the truth. The banks are risk adverse, they don't want to loan to someone who cant pay. They've already determined that they'll allow someone a yearly payment of 15,500 on an income of 50,000. Sure the person is only bringing in 42,500 after withholdings and the bank knows that. Its 31% of gross or 36% of net, either way its 15,500 that they'll approve up to. Its just easier to say 31% of gross than to run someones tax scenario to find out what net will be.
Youre inferring that the banks are inflating the applicants numbers to make them qualify, this is the opposite of the truth. The banks are risk adverse, they don't want to loan to someone who cant pay. They've already determined that they'll allow someone a yearly payment of 15,500 on an income of 50,000. Sure the person is only bringing in 42,500 after withholdings and the bank knows that. Its 31% of gross or 36% of net, either way its 15,500 that they'll approve up to. Its just easier to say 31% of gross than to run someones tax scenario to find out what net will be.
That's not what I am saying. Banks and anyone selling a product will try to sell it the best they can obviously.
Banks want people to buy houses , period. But if people in the back of their mind think that housing is bad or that they can't afford it then the bank don't make money..
To the bank if A makes 50k a year and B makes 50k a year... The banks don't go by the 31% or 39% rule that's a bs rule that is made up??
A makes 50k from passive and B makes it on 1099, the bank will lend A more money...so when you apply they don't care about the gross but how you will pay them...
So reality is bank don't look at gross numbers either way, it's just easier to sell to the public because they will think they can afford something when they don't . It's like when you go to a car dealer because they have zero down... But then again you have more dealer fees that you will finance and pay, that dealer made money from you because you came to them because you bought a new car with no money down...
That's not what I am saying. Banks and anyone selling a product will try to sell it the best they can obviously.
Banks want people to buy houses , period. But if people in the back of their mind think that housing is bad or that they can't afford it then the bank don't make money..
To the bank if A makes 50k a year and B makes 50k a year... The banks don't go by the 31% or 39% rule that's a bs rule that is made up??
A makes 50k from passive and B makes it on 1099, the bank will lend A more money...so when you apply they don't care about the gross but how you will pay them...
Its not a bs rule that is made up. There is a vast abundance of research that has gone into credit and mortgages. They have determined that a person making x dollar amount, can make y payments at a default rate of z. They then went with the maximum amount they can loan out at the minimum default rate. This happened to be in the ballpark of 30% of gross income. They don't make these numbers up to screw around with you.
My husband is the only person in out family of four who is working. On every single one of his pay checks his gross pay fluctuates depending on how much O.T. he got, therefore his net pay is going to fluctuate. So knowing that people can not really live off of their gross pay it makes no sense to me that they continue to go by gross pay. We can't pay our rent with gross pay, we can't buy or groceries with gross pay...so then lenders and other companies shouldn't go by gross pay seeing how we can't pay anything with that. There is a non profit organization, and they deal with low income houses on a rent to own basis. They go by gross income and were right under the limit BUT with them counting my husbands overtime it put us $2,000 over the limit. Again I will never understand how they can count overtime because he doesn't always get it...and we don't pay our bills with the gross income. So it is just one more way for companies to screw people.
Wow, play the victim card much?
Gross is the ONLY way to compare apples to apples. No one is saying you can pay your bills with your gross pay.
Typically to qualify for special programs that have income restrictions, they are going to count all the income including base, OT, bonus, commissions, etc.
That's not what I am saying. Banks and anyone selling a product will try to sell it the best they can obviously.
Banks want people to buy houses , period. But if people in the back of their mind think that housing is bad or that they can't afford it then the bank don't make money..
To the bank if A makes 50k a year and B makes 50k a year... The banks don't go by the 31% or 39% rule that's a bs rule that is made up??
A makes 50k from passive and B makes it on 1099, the bank will lend A more money...so when you apply they don't care about the gross but how you will pay them...
And then the conspiracy theorist...
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