Maybe you should elaborate, Maybe you should elaborate, judging by my response of 3 and seeing that someone picked 6 and the choices available including less than 1, perhaps I misinterpreted the question.
I interpreted it as how many times gross annual salary related to total amount borrowed 9not purchase price, for example if you gross 100k a year and you take a 300k mortgage, you have mortgaged 3 times your income. But if you were basing it on monthly gross and montly mortgage expense to include variables such as taxes, hoa, etc, the multiple would be different.
Can you help us out on the particulars?
carmelrenter
June 26, 2008 @
8:29 AM
Sorry for the ambiguity, my Sorry for the ambiguity, my intent was to survey the former. 100k x 3 = 300k. 3 was the number I felt most comfortable with, and it seems like that’s currently the most common answer, but an article I was reading yesterday (I think on the Union Tribune) said most homeowners in San Diego had a mortgage for 6 to 7 times their gross annual salary and that seemed completely nuts to me.
(former)FormerSanDiegan
June 26, 2008 @
8:49 AM
I had the same question as I had the same question as temeculaguy. The problem with that ratio total mortgage-to-income is that it is interest rate sensitive. Example: A mortgage at 5x one’s income in a 5% interest rate environment is more afforadable than a mortage at 3x one’s income at a 10% interest rate.
At today’s rates (6.5-7.5%), Max loan of 4x my income would work for me. Although 3x is an old rule-of-thumb (and is pretty reasonable when interest rates are in the 8-9% range)
I like the DTI metric (specifically monthly PITI relative to monthly income), and assume that 35-40% of income would be the max I am comfortable with (assuming zero other debt payments).
Eugene
June 26, 2008 @
8:55 AM
3x gross = monthly PITI of 3x gross = monthly PITI of ~35% of net after-tax income (30 yr. fixed at 6%)
5x gross = 55%
6 to 7 times = only feasible with interest-only ARMs, I don’t think that’s the case for most homeowners.
Maximum comfortable level depends on the situation. If you’re making 200K and you have no kids, 5x gross might be affordable. If you have 3 kids to feed and clothe, it’s hard to exceed 3x.
(former)FormerSanDiegan
June 26, 2008 @
9:59 AM
3x gross = monthly PITI of 3x gross = monthly PITI of ~35% of net after-tax income (30 yr. fixed at 6%)
The survey was gross income not after-tax income.
Loan Qual DTI’s are also based on gross income. My comments were based on gross income.
So, 3X gross = monthly PITI of 26% of gross income.
(mortgage at 6%, prop tax at 1.125%, insurance ~ 200 per month).
4X gross would be monthly PITI of about 35% (6% mortgage, prop tax of 1.125%, insurance ~250 per month).
Now if rates were at 10%.
3X gross results in PITI of about 36% of monthly gross.
I agree that anything above 5X income is not sustainable for any reasonable range of interest rates.
noone
June 26, 2008 @
10:09 AM
I prefer to use the PITI to I prefer to use the PITI to income ratio too, but I’ve always compared PITI to gross income. The ratio I’m most comfortable with is about 28% of gross, give or take 2%. Once you get over 30% I think you’re asking for trouble.
PITI might have to be changed to PITHI- Principle, Interest, Taxes, HOA, and Insurance. And of course taxes has to include any Mello-Roos.
So for the original poll, I am most comfortable with 3.5 x gross annual income assuming todays interest rates and no HOA or Mello-Roos. I’ll respond 3 to the poll.
sdduuuude
June 26, 2008 @
11:27 AM
With a ratio-based index, you With a ratio-based index, you might want to add a .5 and 1.5 option in there. I’m a 1.5 but I checked 2.
Eugene
June 26, 2008 @
11:45 AM
Gross is not as interesting. Gross is not as interesting. Ratio of PITI to net after-tax income is transparent and easy to understand: how much of your paycheck do you have to spend on housing and how much do you have left for food, gas, savings.
jmrrobbie1
June 26, 2008 @
1:03 PM
An excellent & free calc site An excellent & free calc site for these types of questions can be found at Jack M. Guttentag’s site from the Wharton school:
Try calculator numbers 5a, 6a, and 9c; his default is 36 percent max income to mortgage ratio… not that I agree this is right for every individual. Realistically, how many families in San Diego can afford a home with this type of ratio?
But I agree that individual factors come into play as another pointed out. Having three young children vs DINKS can significantly alter this percentage – one does not realize just how much income goes toward children not even counting the three 529 plans.
June 25, 2008 @ 10:21 PM
Maybe you should elaborate,
Maybe you should elaborate, judging by my response of 3 and seeing that someone picked 6 and the choices available including less than 1, perhaps I misinterpreted the question.
I interpreted it as how many times gross annual salary related to total amount borrowed 9not purchase price, for example if you gross 100k a year and you take a 300k mortgage, you have mortgaged 3 times your income. But if you were basing it on monthly gross and montly mortgage expense to include variables such as taxes, hoa, etc, the multiple would be different.
Can you help us out on the particulars?
June 26, 2008 @ 8:29 AM
Sorry for the ambiguity, my
Sorry for the ambiguity, my intent was to survey the former. 100k x 3 = 300k. 3 was the number I felt most comfortable with, and it seems like that’s currently the most common answer, but an article I was reading yesterday (I think on the Union Tribune) said most homeowners in San Diego had a mortgage for 6 to 7 times their gross annual salary and that seemed completely nuts to me.
June 26, 2008 @ 8:49 AM
I had the same question as
I had the same question as temeculaguy. The problem with that ratio total mortgage-to-income is that it is interest rate sensitive. Example: A mortgage at 5x one’s income in a 5% interest rate environment is more afforadable than a mortage at 3x one’s income at a 10% interest rate.
At today’s rates (6.5-7.5%), Max loan of 4x my income would work for me. Although 3x is an old rule-of-thumb (and is pretty reasonable when interest rates are in the 8-9% range)
I like the DTI metric (specifically monthly PITI relative to monthly income), and assume that 35-40% of income would be the max I am comfortable with (assuming zero other debt payments).
June 26, 2008 @ 8:55 AM
3x gross = monthly PITI of
3x gross = monthly PITI of ~35% of net after-tax income (30 yr. fixed at 6%)
5x gross = 55%
6 to 7 times = only feasible with interest-only ARMs, I don’t think that’s the case for most homeowners.
Maximum comfortable level depends on the situation. If you’re making 200K and you have no kids, 5x gross might be affordable. If you have 3 kids to feed and clothe, it’s hard to exceed 3x.
June 26, 2008 @ 9:59 AM
3x gross = monthly PITI of
3x gross = monthly PITI of ~35% of net after-tax income (30 yr. fixed at 6%)
The survey was gross income not after-tax income.
Loan Qual DTI’s are also based on gross income. My comments were based on gross income.
So, 3X gross = monthly PITI of 26% of gross income.
(mortgage at 6%, prop tax at 1.125%, insurance ~ 200 per month).
4X gross would be monthly PITI of about 35% (6% mortgage, prop tax of 1.125%, insurance ~250 per month).
Now if rates were at 10%.
3X gross results in PITI of about 36% of monthly gross.
I agree that anything above 5X income is not sustainable for any reasonable range of interest rates.
June 26, 2008 @ 10:09 AM
I prefer to use the PITI to
I prefer to use the PITI to income ratio too, but I’ve always compared PITI to gross income. The ratio I’m most comfortable with is about 28% of gross, give or take 2%. Once you get over 30% I think you’re asking for trouble.
PITI might have to be changed to PITHI- Principle, Interest, Taxes, HOA, and Insurance. And of course taxes has to include any Mello-Roos.
So for the original poll, I am most comfortable with 3.5 x gross annual income assuming todays interest rates and no HOA or Mello-Roos. I’ll respond 3 to the poll.
June 26, 2008 @ 11:27 AM
With a ratio-based index, you
With a ratio-based index, you might want to add a .5 and 1.5 option in there. I’m a 1.5 but I checked 2.
June 26, 2008 @ 11:45 AM
Gross is not as interesting.
Gross is not as interesting. Ratio of PITI to net after-tax income is transparent and easy to understand: how much of your paycheck do you have to spend on housing and how much do you have left for food, gas, savings.
June 26, 2008 @ 1:03 PM
An excellent & free calc site
An excellent & free calc site for these types of questions can be found at Jack M. Guttentag’s site from the Wharton school:
http://www.mtgprofessor.com/calculatorsOriginalMenu.htm
Try calculator numbers 5a, 6a, and 9c; his default is 36 percent max income to mortgage ratio… not that I agree this is right for every individual. Realistically, how many families in San Diego can afford a home with this type of ratio?
But I agree that individual factors come into play as another pointed out. Having three young children vs DINKS can significantly alter this percentage – one does not realize just how much income goes toward children not even counting the three 529 plans.