4 ms·

I've heard 3x income as a rule of thumb for how much house one can afford, but it looks like that's never been widely followed. It also doesn't make a whole he

I've heard 3x income as a rule of thumb for how much house one can afford, but it looks like that's never been widely followed. It also doesn't make a whole heck of a lot of sense as interest rates have varied so widely - a better rule of thumb might be a ratio between the total amount of payments over the life of a mortgage and one's income.

clipradiowallet 5y ago
The 3x income rule is usually mentioned by your loan officer, and your real estate agent. They will present you with houses costing 3x your income as a baseline of what you can afford.
- Fire-Dragon-DoL 5y ago
  That's funny, you need to earn 250000/year to be able to afford _something_ in Vancouver by following that rule.
  - __turbobrew__ 5y ago
    or 600000/year for a starter home
zzleeper 5y ago
Agree. From experience, people look into how much they would pay monthly and their income. This then begs the question: what will happen once rates go up even a bit, and houses suddenly require a 50% larger monthly payment.
- throwaway6734 5y ago
  Most mortgages haves fixed rates
  - zzleeper 5y ago
    Of course. But buyers still need to be able to afford houses they purchase. With higher rates that might not be true.
    - rozap 5y ago
      Does it matter? From an individual's perspective, if you can make the monthly payment then all is well. Sure, the market may tank but all that does is effect your ability to move.
  - pureliquidhw 5y ago
    New mortgages will need that extra 50% driving home values down due to future homebuyers having less "monthly" purchasing power.
  - deleted 5y ago
    [deleted]
  - wheelinsupial 5y ago
    Over what time period? I think I’m America you can get a 30 year fixed rate mortgage. In Canada, 5 years is the most you can get even if the amortization period is 25-30 years.
    - throwaway6734 5y ago
      In the US, 10, 15, 20, or 30 years in my experience
rootusrootus 5y ago
IMO the ratio depends entirely on your age. It makes a lot of sense for someone in their 20s to go for a 4x ratio (with caveats, such as fixed mortgage rates). It makes no sense at all for someone in their 60s.
Glyptodon 5y ago
3x income for your debt load or for the overall home cost? Either way it seems like it wouldn't really directly translate to a % of income as monthly payment.
dbetteridge 5y ago
That rule does not work in Australia, Canada or the UK :D Median salary is about 80k AUD in Western Australia. Median house price is 840k. Even with 2 full time salaries of 80k your maximum would be 480k.

clipradiowallet 5y ago

The 3x income rule is usually mentioned by your loan officer, and your real estate agent. They will present you with houses costing 3x your income as a baseline of what you can afford.

Fire-Dragon-DoL 5y ago
That's funny, you need to earn 250000/year to be able to afford _something_ in Vancouver by following that rule.
- __turbobrew__ 5y ago
  or 600000/year for a starter home

zzleeper 5y ago

Agree. From experience, people look into how much they would pay monthly and their income. This then begs the question: what will happen once rates go up even a bit, and houses suddenly require a 50% larger monthly payment.

throwaway6734 5y ago
Most mortgages haves fixed rates
- zzleeper 5y ago
  Of course. But buyers still need to be able to afford houses they purchase. With higher rates that might not be true.
  - rozap 5y ago
    Does it matter? From an individual's perspective, if you can make the monthly payment then all is well. Sure, the market may tank but all that does is effect your ability to move.
- pureliquidhw 5y ago
  New mortgages will need that extra 50% driving home values down due to future homebuyers having less "monthly" purchasing power.
- deleted 5y ago
  [deleted]
- wheelinsupial 5y ago
  Over what time period? I think I’m America you can get a 30 year fixed rate mortgage. In Canada, 5 years is the most you can get even if the amortization period is 25-30 years.
  - throwaway6734 5y ago
    In the US, 10, 15, 20, or 30 years in my experience

rootusrootus 5y ago

IMO the ratio depends entirely on your age. It makes a lot of sense for someone in their 20s to go for a 4x ratio (with caveats, such as fixed mortgage rates). It makes no sense at all for someone in their 60s.

Glyptodon 5y ago

3x income for your debt load or for the overall home cost? Either way it seems like it wouldn't really directly translate to a % of income as monthly payment.

dbetteridge 5y ago

That rule does not work in Australia, Canada or the UK :D Median salary is about 80k AUD in Western Australia. Median house price is 840k. Even with 2 full time salaries of 80k your maximum would be 480k.