What’s wrong with 29%/41%, conventional is 33/38 or something like that. I bought a house 20 years ago with fha and the top end was 41% back then, it was fine.
Let’s say you gross 5k a month (60k a year), your mortgage with everything included(taxes, insurance, pmi) and your car payments, credit card payments, student loans, basicly any and all debt, cannot exceed 2k a month total. with lower incomes, the tax rate is lower and with a home deduction they are probably taking home 4k. That’s not unreasonable to ask someone to have their house, car and the rest take up half their take home, the 2k left over is for utilities, fuel and food. It worked for a long time until recently when they stopped verifying income or debt.
At higher incomes it actually stings more because the tax rate increases, but then again the utils. food and fuel are at similar rates so it works. The 38-41% formula has been around a long time, it is the lack of verification that caused the trouble.
If you break it down, that 60k earner might have a $300 car payment and $200 in credit card bills, they get to have a loan of about $1500 total, inclusive of all impounds, so its about a 1200 P&I, that means sub 200k purchase price and is just a tad over 3x earnings. It’s tight but if their rent is 1200 mo, then that 1500 house payment after taxes will be in line.
I think the same formula has been in use for 50 years, it works and it’s not new.
