House affordability

[Singuy]

43 percent is generally the number used for TOTAL DEBT TO INCOME.

I would be surprised if a bank was using that number for housing...

I didn't think the bank uses some debt to income numbers for a house only. They always ask about your total debt in monthly payments and work off those numbers..

[Singuy]

Agreed. There's just always going to be a percentage of irresponsible people that those who are responsible will have to take care of.

I like to call those people...bottom feeders.

Are you talking about ...most people in the U.S? There's a difference between a true bottom feeder and a prey from predatory lending (and I'm looking at you mortgage brokers!).

America is a GOLD MINE for any type of lending! You have a country in which MOST people are NOT educated about finances and have no understanding about compounding interest. There's a reason why the average credit card debt is over 10k! 10k at 20% interest rate with people paying min payments! How many people do you know understands that pennies are going toward their principle paying the min payments set by the credit card company? I'm telling you, if I were a bank, I'll be all over the U.S. It's harder to pull this type of crap in other countries.

[Fishindude77]

I agree there is some shady lending going on, but don't blame it on the lenders and let the borrowers off the hook. Nobody is holding a gun to these borrowers heads, forcing them to borrow this money. How about a little personal accountability for our own problems?

[Singuy]

I agree there is some shady lending going on, but don't blame it on the lenders and let the borrowers off the hook. Nobody is holding a gun to these borrowers heads, forcing them to borrow this money. How about a little personal accountability for our own problems?

I'm going to blame the parents and the culture of this country. It's understandable to sell people in the U.S a delicious juicy trap such as a house they can't afford. It's everyone around you telling you that THIS IS THE AMERICAN DREAM and that EVERYONE IS DOING IT! We are the greatest blah blah blah blah blah on earth and you don't want to live like one of those people in the third world right? You are an American! You deserve EVERYTHING!

[Fishindude77]

Your parents didn't sign up for the loan, you did.
The culture you live around didn't force you to pick up the pen and sign the mortgage, you did that on your own too.

[Singuy]

Your parents didn't sign up for the loan, you did.
The culture you live around didn't force you to pick up the pen and sign the mortgage, you did that on your own too.

No I am blaming the parents or the American culture for not teaching children what compounding interests are or anything about financing. This leads them to be easy target for these too big to fail banks.

If you ask anyone "hey did you know that the reason why you are living paycheck to paycheck is because you bought too much house?"....and they will be like "whaaaatttt???...but the bank preapproved me for this amount..that can't be it..it's because we have crap social programs and wages have been stagnant and the top 1% is taking away all the wealth!" My parents borrowed to buy a house and they were just fine..so yup..it's because we are NOT getting paid enough! Those 1%ers taking all the money and making me poor!

On one hand the 0.1%ers are the predators..but my god people here just rolls over and let them be preyed upon.

[sv2007]

It was greed from both sides of the table: the lenders and the borrowers during 2008. Lenders realized that they can make risky loans and still able to package them into AAA rated securities to sell off (like to pensions); borrowers were hooked on the ever-increasing house prices and were putting 0% down (many even put 0% down AND took money out at closing).

A lot of borrowers knew that they were getting a low monthly payment by only making interest payments (and using the cash out at closing to pay too); many refi and took even more money out. Borrowers were using their houses a ATM machines. Many actually got more money out of their homes than they paid into it.

I think most would know that this isn't normal. I.e. it actually pays to "buy" a house. For example, $0 down $5k out at close. Paying $1k/month interest only; refi in 3rd month taking $100k out. Total eraned for "buying" = $102,000.

Many borrowers were doing it back then; even the "poor" guys you talk about.

[sv2007]

I know the ATM machine phrase is cliche, but it describes the situation very well.

I remember reading a new from that time about a home owner complaining that he lost his house because of higher rates (he took out an ARM), and the details include him refi (to ARM) and taking out $80k. He didn't even know what he did with the $80k.

[LivingAlmostLarge]

Now though 0% DP or 3% DP and sellers covering closing costs is becoming more common.

[~bs]

My mortgage alone was over 50% of gross income when I bought my place, and that's with a 20% down. It's one of the realities living in a high col area.

The straight up cost of housing average in my state is around 45% of total income, well above national averages


That 30% rule not very applicable, as the cosy of housing historically has been rising much faster than income levels.

[LivingAlmostLarge]

but was your gross income very high? I mean there's a huge difference I hate to be crass between $100k and $400k?

[~bs]

but was your gross income very high? I mean there's a huge difference I hate to be crass between $100k and $400k?

Would be nice if it was, but nope. At the time, it was a pretty meager around $40k per year. In my state, and I imagine in other high cost localities, multiple peopple paying rent/mortgage for 1 small place is a reality.

For me, the only reason I could do it on a single income was a decent down payment amount (due to high savings in my teens and 20s) and stable income history, which the bank liked. If it wasn't for that ****ty financial situation, I would never have started my own business in addition to working a 9-5 (actually a lot more hours) job. If you counted maintenance fees, utilites, and other housing related expenses, my housing cost was probably more like 60-70% of my income. Over 1 of my bi-monthly paychecks went to my monthly mortgage alone.

In general, you bite the bullet early on, lock in a mortgage you can scrape by on, then work hard to hopefully increase your income, refinance the mortgage down, etc. Eventually you come out alright, but not after some severe sacrifices up front. The reality of trying to survive in a high COL locality.

[LivingAlmostLarge]

Ugh that does not sound stable.

[~bs]

Ugh that does not sound stable.

Nope, hence the need for the emergency fund. A job loss, and you're pretty screwed. Of course, for me, there was always the option to move back to my parents house and rent out my place to cover some of the mortgage cost. Not ideal either though.