People that spout off the 40% of income aren’t thinking about what kind of income a first time home buyer actually has. Do we all remember when we were first time home buyers? I’m almost 48 now, but I remember back when I was twenty. I was broke most of the time. My wife and I married and I think our combined income was $35,000. Of course it is $150K now, but that’s 23 years of marriage and career changes. Anyway, I know that we couldn’t have put 40% of our income towards mortgage and do anything else. What is the average household income now…. $40K right? Now is that Gross? Doesn’t sound like much. Take home is 75% of that. Let’s say you figure the 40% of the 75% figure, or $30K. That makes it $12,000 a year to the house or $1000 a month. Let’s say the $1000 includes all the other fees (insurance, taxes, etc). So really, you got a mortgage of around $150,000. I plugged some numbers into a bankrate.com calculator and a loan at 5% for 30 years fixed is $805.23, before figuring in the other fees like insurance. 15 years is really what someone should shoot for, so the monthly payment would be $1186.00 + other costs. So, the first time home buyer, going by the 40% rule, can barely afford a $150,000 home with a 15 year fixed. Now, back when I was young and banks were more strict about loaning us young people money, the more common rule of thumb was 25% of your income. Of course, houses were also much cheaper. But back to my point, at 40% of take home of the average first time buyer, they have $18000 a year left for everything else they need money for. Food, clothes, cars, auto insurance, savings, vacation, kids. I just think housing is way out of line and something has to give. How many houses are in the San Diego area in the $150K range?
