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The sale price doesn’t really matter. There are standards for maximum % of your income spent on monthly housing costs. I think it’s like 25% but don’t quote me.
by encoderer 4y ago
The sale price doesn’t really matter. There are standards for maximum % of your income spent on monthly housing costs. I think it’s like 25% but don’t quote me.
- Avshalom 4y ago35% is what I usually see. That includes taxes and insurance though so what portion of your income can actually get will vary depending on the location. Which works out to about 4x gross.
- tmnvix 4y agoIt certainly does matter. The size of the deposit is directly related to the price and is the largest hurdle to overcome for many. I would even say that a lower price and therefore deposit together with a higher interest rate can make housing more accessible (even if not necessarily more affordable).
- Kirby64 4y agoSales price definitely does matter though. It was problematic in the 2008 period because housing prices shot up so fast, then crashed, leaving people with houses that were deeply underwater. Although you can 'afford' more sales price with a monthly payment based on a 0% interest loan vs. a 10% loan, it puts you at greater risk. With a higher interest loan, you have more slack to potentially refinance in the future. Also, taxes and insurance are based (roughly) on the price of the house, not based on the monthly payment. The 2.5x-3x annual salary was always a rough rule of thumb, but when I hear people talking about 5-7x their salary... there's very few ways where that house makes sense.