3 ms·
Yeah, I never understood the 30% thing. You need to live on what's left over. If "minimum non-housing living costs" are , say, 20k/year, someone who earns 30k c
by HPsquared 4y ago
Yeah, I never understood the 30% thing. You need to live on what's left over. If "minimum non-housing living costs" are , say, 20k/year, someone who earns 30k can only afford to spend 33% on rent, but someone earning 100k could afford spending 80% of their income on rent (if they chose to do so).
The 30% thing is completely arbitrary and a massive distortion of reality.
- hnburnsy 4y agoConventional mortgage qualifications are typically 36% DTI. Debt to income ratio is (PITI + all other monthly debt payments) / monthly pre-tax salary. PITI is principal, interest, property taxes, and mortgage insurance.
- HPsquared 4y agoThat's the rule, but what is it based on? Why does it need to be proportional to income? It seems pretty arbitrary. It would be more correct to use actual living costs in a given area (food, transport, etc.).
- hnburnsy 4y agoIt is set by the organizations that purchase mortgages from the bank. If the borrowers don't meet these guidelines they won't buy the mortgage and the bank would need to hold it, which they typically don't want to. See FNMA and FHLMC.
- hnburnsy 4y agohttps://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B3-Underwriting-Borrowers/Chapter-B3-6-Liability-Assessment/1032992131/B3-6-02-Debt-to-Income-Ratios-02-05-2020.htm https://selling-guide.fanniemae.com/Selling-Guide/Originatio...