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Affordability is limited by lending requirements. Start with home price of $250k for example. If you can manage a 5% down payment (arguable) then the loan is
by MrFlibbles 5y ago
Affordability is limited by lending requirements.
Start with home price of $250k for example. If you can manage a 5% down payment (arguable) then the loan is for $237.5k.
With a 30 year loan at 3.5%, the principal and interest is $1,066.48 per month. Gross this up by 0.7 for taxes and insurance to get $1,523.54/month.
Lenders will typically allow your payment to be as much as 28.0% of your gross income. This get us to income of $5,441.23/month or $65,294.76/year.
The multiple now if $65.3k income to $250.0k of house or roughly 3.83X.
- zzleeper 5y agoI just got a 15yr fixed rate at 2% (!) which made me think a lot about what's behind your comment. In particular, what will happen once rates go back up: 1) Right now we are at zero short term rates, and moreover mortgage rates are propped due to Fed purchases of Agency MBS 2) Say rates go up 2% (not crazy) in parallel. So now your 3.5% becomes 5.5% which is still historically moderate. However, the 5441 required monthly income from your formula is now 6877! 26% increase. 3) What then? Prices go down?
- kipchak 5y agoRegarding 3 I would figure either prices would have to come down, financial assistance comes from somewhere, or the house winds up being rented after being purchased by a management group.
- lbotos 5y agoHouse price is inversely correlated to interest rates BECAUSE most buyers are getting a mortgage. So the price of the house "will drop" (hard and fast estimate here not a law) if interest rates rise because people are paying for house+interest = total_cost_able_to_pay. I watched this play out in real time as I purchased my home. Rates dropped, prices went up to fill the gap. Owner got a bit more money vs the bank instead. Basically I gave my money to a different person, but the "all in" was about the same.