Income to Mortgage Ratios in the new Banking System???

[DoJC]

I was recently reading that in CA the ratio of household income to mortgage loan was at 12:1 for a while until the tires came off, and they’ve lowered to 11.1:1 recently. (That’s to say that banks would loan a person with $100k in income $1.2M before, and $1.11M recently) These figures leave me with some pretty serious questions:

1. What has been the ratio of any loans you’ve heard about in the last two months? Any first, second, or third hand accounts of income to loan ratios?

2. What is the ratio banks will allow from now on?

I ask as all this relates to buying a home in CA, how far the prices fall, and when is a good time to buy. For example: if the new ratio is closer to as low as 4:1, or even 6:1, I see some REALLY serious problems coming down the pike for CA. I’ve printed, and am reading through, the California Budget Project report titled: Locked Out 2008: The Housing Boom and Beyond. In it we find that in Orange County the median income is $70,232, while the median home price is 625k. That comes out to be nearly a 9:1 ratio. San Diego County is also pretty bad off, but slightly better than OC. There we find a median household income of $59,591, and a median home price of $470k. That is a slightly more manageable 8:1 ratio.

So, what does this mean to us? Here’s my take on some potential outcomes:

1. People are going to have to come up with some serious down payments that are large enough to reduce the loan to the proper ratio, or they won’t be able to buy a home.

2. Home prices will have to drop considerably more than they already have. Talks of 25% are a good start, but with a 6:1 ratio any of the more exclusive and/or expensive neighborhoods are suddenly going to go from stagnant in the sales department to something even more glacier/ice age-like

3. Banks, while taking MASSIVE losses due to other bad loans and recent past mistakes, are going to have to take another set of massive risks and start giving loans at much riskier ratios of 10:1, or even 11:1. Not likely due to a certain instinct for self-preservation that will, in a Pavlovian way, cause them to shrink back from risk like a child who just stuck a needle into an electrical socket.

4. Some combination of #1 & #3 – banks will increase their ratios in CA once the home prices stabilize some, and will require at least 10% on all loans with a high ratio, with a push for closer to 20% whenever possible.

Any thoughts on this? Please post general information on ratios if you’re uncomfortable using real figures. It would greatly help the flow of info and ideas.

[vizcaya]

The ratio that I approved on was 1 to 3.75. Or a mortage of 300k loan from a 80k annual salary. For me, I would not want to try to go any higher than that ratio. We have to be able to live, and enjoy life. It would suck to be a slave to your house.

Banks will be forced to bring those ratios down, otherwise people will continue to goto into default.

[vizcaya]

The ratio that I approved on was 1 to 3.75. Or a mortage of 300k loan from a 80k annual salary. For me, I would not want to try to go any higher than that ratio. We have to be able to live, and enjoy life. It would suck to be a slave to your house.

Banks will be forced to bring those ratios down, otherwise people will continue to goto into default.

[vizcaya]

The ratio that I approved on was 1 to 3.75. Or a mortage of 300k loan from a 80k annual salary. For me, I would not want to try to go any higher than that ratio. We have to be able to live, and enjoy life. It would suck to be a slave to your house.

Banks will be forced to bring those ratios down, otherwise people will continue to goto into default.

[vizcaya]

The ratio that I approved on was 1 to 3.75. Or a mortage of 300k loan from a 80k annual salary. For me, I would not want to try to go any higher than that ratio. We have to be able to live, and enjoy life. It would suck to be a slave to your house.

Banks will be forced to bring those ratios down, otherwise people will continue to goto into default.

[vizcaya]

The ratio that I approved on was 1 to 3.75. Or a mortage of 300k loan from a 80k annual salary. For me, I would not want to try to go any higher than that ratio. We have to be able to live, and enjoy life. It would suck to be a slave to your house.

Banks will be forced to bring those ratios down, otherwise people will continue to goto into default.

[HLS]

DOJ, you’ve got some really bad info.
Loaning $12 on $1 of income was never possible.

Nobody on earth approves loans based solely on annual income, and there was never a time that even 10:1 was a measure.

Borrowers are qualified on gross income vs. total monthly debts, (minimum payments) including mortgage, property taxes, hazard insurance, HOA fees, credit cards, car payments, school loans, child support/alimony etc. Usually only monthly debts that are on a credit report are used.

The higher your income, the more disposable income you should have.

There is no exact ratio, but up to 60% of gross income is not impossible.
It’s more debt than I recommend, but many people don’t want to listen.

Lenders will approve people for more debt than they should take on.

Median numbers mean absolutely nothing, and are misleading.
Median income earners don’t buy median priced homes.

Your “potential outcomes” are the kind of misleading projections that the media loves.

[HLS]

DOJ, you’ve got some really bad info.
Loaning $12 on $1 of income was never possible.

Nobody on earth approves loans based solely on annual income, and there was never a time that even 10:1 was a measure.

Borrowers are qualified on gross income vs. total monthly debts, (minimum payments) including mortgage, property taxes, hazard insurance, HOA fees, credit cards, car payments, school loans, child support/alimony etc. Usually only monthly debts that are on a credit report are used.

The higher your income, the more disposable income you should have.

There is no exact ratio, but up to 60% of gross income is not impossible.
It’s more debt than I recommend, but many people don’t want to listen.

Lenders will approve people for more debt than they should take on.

Median numbers mean absolutely nothing, and are misleading.
Median income earners don’t buy median priced homes.

Your “potential outcomes” are the kind of misleading projections that the media loves.

[HLS]

DOJ, you’ve got some really bad info.
Loaning $12 on $1 of income was never possible.

Nobody on earth approves loans based solely on annual income, and there was never a time that even 10:1 was a measure.

Borrowers are qualified on gross income vs. total monthly debts, (minimum payments) including mortgage, property taxes, hazard insurance, HOA fees, credit cards, car payments, school loans, child support/alimony etc. Usually only monthly debts that are on a credit report are used.

The higher your income, the more disposable income you should have.

There is no exact ratio, but up to 60% of gross income is not impossible.
It’s more debt than I recommend, but many people don’t want to listen.

Lenders will approve people for more debt than they should take on.

Median numbers mean absolutely nothing, and are misleading.
Median income earners don’t buy median priced homes.

Your “potential outcomes” are the kind of misleading projections that the media loves.

[HLS]

DOJ, you’ve got some really bad info.
Loaning $12 on $1 of income was never possible.

Nobody on earth approves loans based solely on annual income, and there was never a time that even 10:1 was a measure.

Borrowers are qualified on gross income vs. total monthly debts, (minimum payments) including mortgage, property taxes, hazard insurance, HOA fees, credit cards, car payments, school loans, child support/alimony etc. Usually only monthly debts that are on a credit report are used.

The higher your income, the more disposable income you should have.

There is no exact ratio, but up to 60% of gross income is not impossible.
It’s more debt than I recommend, but many people don’t want to listen.

Lenders will approve people for more debt than they should take on.

Median numbers mean absolutely nothing, and are misleading.
Median income earners don’t buy median priced homes.

Your “potential outcomes” are the kind of misleading projections that the media loves.

[HLS]

DOJ, you’ve got some really bad info.
Loaning $12 on $1 of income was never possible.

Nobody on earth approves loans based solely on annual income, and there was never a time that even 10:1 was a measure.

Borrowers are qualified on gross income vs. total monthly debts, (minimum payments) including mortgage, property taxes, hazard insurance, HOA fees, credit cards, car payments, school loans, child support/alimony etc. Usually only monthly debts that are on a credit report are used.

The higher your income, the more disposable income you should have.

There is no exact ratio, but up to 60% of gross income is not impossible.
It’s more debt than I recommend, but many people don’t want to listen.

Lenders will approve people for more debt than they should take on.

Median numbers mean absolutely nothing, and are misleading.
Median income earners don’t buy median priced homes.

Your “potential outcomes” are the kind of misleading projections that the media loves.

[Ex-SD]

I haven’t had a mortgage in over 20 years and never had a HELOC. My wife and I are extremely conservative with our money and when we bought homes with a mortgage, we never bit off more than about 25% of our income for a mortgage payment. I’ve seen too many people lose their jobs, get divorces, have medical hardships, etc. and I always had the mindset that I wasn’t going to ever let a house put me in a financial bind. When we lived in SD, we eventually owned our primary residence and a really nice second home that we rented out……we owned both free and clear. My point is that many financial genius’s will tell you to leverage, leverage, leverage……………but leverage can easily land you in the poor house. Use common sense when getting a mortgage.

[Ex-SD]

I haven’t had a mortgage in over 20 years and never had a HELOC. My wife and I are extremely conservative with our money and when we bought homes with a mortgage, we never bit off more than about 25% of our income for a mortgage payment. I’ve seen too many people lose their jobs, get divorces, have medical hardships, etc. and I always had the mindset that I wasn’t going to ever let a house put me in a financial bind. When we lived in SD, we eventually owned our primary residence and a really nice second home that we rented out……we owned both free and clear. My point is that many financial genius’s will tell you to leverage, leverage, leverage……………but leverage can easily land you in the poor house. Use common sense when getting a mortgage.

[Ex-SD]

I haven’t had a mortgage in over 20 years and never had a HELOC. My wife and I are extremely conservative with our money and when we bought homes with a mortgage, we never bit off more than about 25% of our income for a mortgage payment. I’ve seen too many people lose their jobs, get divorces, have medical hardships, etc. and I always had the mindset that I wasn’t going to ever let a house put me in a financial bind. When we lived in SD, we eventually owned our primary residence and a really nice second home that we rented out……we owned both free and clear. My point is that many financial genius’s will tell you to leverage, leverage, leverage……………but leverage can easily land you in the poor house. Use common sense when getting a mortgage.

[Ex-SD]

I haven’t had a mortgage in over 20 years and never had a HELOC. My wife and I are extremely conservative with our money and when we bought homes with a mortgage, we never bit off more than about 25% of our income for a mortgage payment. I’ve seen too many people lose their jobs, get divorces, have medical hardships, etc. and I always had the mindset that I wasn’t going to ever let a house put me in a financial bind. When we lived in SD, we eventually owned our primary residence and a really nice second home that we rented out……we owned both free and clear. My point is that many financial genius’s will tell you to leverage, leverage, leverage……………but leverage can easily land you in the poor house. Use common sense when getting a mortgage.

[Author]

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