” ‘CogSciGuy, if you could get a loan for $1 million at a PTI of $2500, would you take it?’
Sure, probably. Wouldn’t you? If I’m purchasing a property with a PITI of $2500/month, I bet I could rent it out for many multiples of $2500/month.
Or was there a different point you were trying to make?”
CogSciGuy, I assumed you were talking about buying your own home, not an investment property. Let’s make that assumption.
My point is that you seem to calculate affordability based solely on the monthly payment, not the purchase price. If you buy a house for, let’s say, $1 million, then my point is that you can only REALLY afford the house if you can expect to earn, net of taxes etc, $1 million in excess of your other needs and wants over your lifetime. Looking at it that way forces you to understand that the price of the house is going to have to compete with some other long-term goals you may not want to sacrifice now. Do you really want to buy a $500K house if it means you may have to retire no earlier than 65, or limit your spending from now until you die to your current abstemious budget?
For years now, most buyers didn’t do the kind of analysis I’m describing, becaase they just assumed that if the price of the home became too much to bear, they would sell it and get a gain, or at least their money back. At today’s prices, that’s not a slam dunk assumption, regardless of your monthly payments.
