Problem Solved: The Return of the $1,000 Down Mortgage

[temeculaguy]

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.

[CA renter]

TG,

The DTI ratios were lower, from what I’ve read and from what I remember when my parents were RE brokers.

Historical limits
The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era. It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances (more information at Credit card#History). Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). In other words, in today's notation, it could be expressed as 25/25, or perhaps more accurately, 25/NA, with the NA limit left to the discretion of lenders on a case-by-case basis. In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

http://en.wikipedia.org/wiki/Debt-to-income_ratio
—————

In these times, with higher costs, more debt, less secure jobs, fewer DB pensions, and potentially catastrophic medical expenses, etc., I think it’s prudent to reduce these DTI ratios by quite a bit.

In your numbers, where is the buffer for extended periods of unemployment, disability, divorce, untimely death, etc.? What about saving for college or retirement? I think $2,000/month for a family’s living expenses is cutting it thin (this is admittedly different for childless people, or those with significant assets, as they have far fewer expenses or more resources).

[CA renter]

TG,

The DTI ratios were lower, from what I’ve read and from what I remember when my parents were RE brokers.

Historical limits
The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era. It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances (more information at Credit card#History). Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). In other words, in today's notation, it could be expressed as 25/25, or perhaps more accurately, 25/NA, with the NA limit left to the discretion of lenders on a case-by-case basis. In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

http://en.wikipedia.org/wiki/Debt-to-income_ratio
—————

In these times, with higher costs, more debt, less secure jobs, fewer DB pensions, and potentially catastrophic medical expenses, etc., I think it’s prudent to reduce these DTI ratios by quite a bit.

In your numbers, where is the buffer for extended periods of unemployment, disability, divorce, untimely death, etc.? What about saving for college or retirement? I think $2,000/month for a family’s living expenses is cutting it thin (this is admittedly different for childless people, or those with significant assets, as they have far fewer expenses or more resources).

[CA renter]

TG,

The DTI ratios were lower, from what I’ve read and from what I remember when my parents were RE brokers.

Historical limits
The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era. It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances (more information at Credit card#History). Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). In other words, in today's notation, it could be expressed as 25/25, or perhaps more accurately, 25/NA, with the NA limit left to the discretion of lenders on a case-by-case basis. In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

http://en.wikipedia.org/wiki/Debt-to-income_ratio
—————

In these times, with higher costs, more debt, less secure jobs, fewer DB pensions, and potentially catastrophic medical expenses, etc., I think it’s prudent to reduce these DTI ratios by quite a bit.

In your numbers, where is the buffer for extended periods of unemployment, disability, divorce, untimely death, etc.? What about saving for college or retirement? I think $2,000/month for a family’s living expenses is cutting it thin (this is admittedly different for childless people, or those with significant assets, as they have far fewer expenses or more resources).

[CA renter]

TG,

The DTI ratios were lower, from what I’ve read and from what I remember when my parents were RE brokers.

Historical limits
The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era. It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances (more information at Credit card#History). Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). In other words, in today's notation, it could be expressed as 25/25, or perhaps more accurately, 25/NA, with the NA limit left to the discretion of lenders on a case-by-case basis. In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

http://en.wikipedia.org/wiki/Debt-to-income_ratio
—————

In these times, with higher costs, more debt, less secure jobs, fewer DB pensions, and potentially catastrophic medical expenses, etc., I think it’s prudent to reduce these DTI ratios by quite a bit.

In your numbers, where is the buffer for extended periods of unemployment, disability, divorce, untimely death, etc.? What about saving for college or retirement? I think $2,000/month for a family’s living expenses is cutting it thin (this is admittedly different for childless people, or those with significant assets, as they have far fewer expenses or more resources).

[CA renter]

TG,

The DTI ratios were lower, from what I’ve read and from what I remember when my parents were RE brokers.

Historical limits
The business of lending and borrowing money has evolved qualitatively in the post-World-War-II era. It was not until that era that the FHA and the VA (through the G.I. Bill) led the creation of a mass market in 30-year, fixed-rate, amortized mortgages. It was not until the 1970s that the average working person carried credit card balances (more information at Credit card#History). Thus the typical DTI limit in use in the 1970s was PITI<25%, with no codified limit for the second DTI ratio (the one including credit cards). In other words, in today's notation, it could be expressed as 25/25, or perhaps more accurately, 25/NA, with the NA limit left to the discretion of lenders on a case-by-case basis. In the following decades these limits gradually climbed higher, and the second limit was codified (coinciding with the evolution of modern credit scoring), as lenders determined empirically how much risk was profitable. This empirical process continues today.

http://en.wikipedia.org/wiki/Debt-to-income_ratio
—————

In these times, with higher costs, more debt, less secure jobs, fewer DB pensions, and potentially catastrophic medical expenses, etc., I think it’s prudent to reduce these DTI ratios by quite a bit.

In your numbers, where is the buffer for extended periods of unemployment, disability, divorce, untimely death, etc.? What about saving for college or retirement? I think $2,000/month for a family’s living expenses is cutting it thin (this is admittedly different for childless people, or those with significant assets, as they have far fewer expenses or more resources).

[UCGal]

CAR – I remember tighter DTI ratios too… when I bought my first house in WA state in 1991 WAMU required 25% DTI. This was back before WAMU got crazy, they were still mostly WA state at that point. They also held the mortgage themselves (no selling it off to GSEs). Boy times changed in the ensuing decades.

[UCGal]

CAR – I remember tighter DTI ratios too… when I bought my first house in WA state in 1991 WAMU required 25% DTI. This was back before WAMU got crazy, they were still mostly WA state at that point. They also held the mortgage themselves (no selling it off to GSEs). Boy times changed in the ensuing decades.

[UCGal]

CAR – I remember tighter DTI ratios too… when I bought my first house in WA state in 1991 WAMU required 25% DTI. This was back before WAMU got crazy, they were still mostly WA state at that point. They also held the mortgage themselves (no selling it off to GSEs). Boy times changed in the ensuing decades.

[UCGal]

CAR – I remember tighter DTI ratios too… when I bought my first house in WA state in 1991 WAMU required 25% DTI. This was back before WAMU got crazy, they were still mostly WA state at that point. They also held the mortgage themselves (no selling it off to GSEs). Boy times changed in the ensuing decades.

[UCGal]

CAR – I remember tighter DTI ratios too… when I bought my first house in WA state in 1991 WAMU required 25% DTI. This was back before WAMU got crazy, they were still mostly WA state at that point. They also held the mortgage themselves (no selling it off to GSEs). Boy times changed in the ensuing decades.

[temeculaguy]

Admittedly I’m using info from 1990/1991 because that is when i bought my first house and the fha ceiling was 41%, the default rate back then was steady in the 5-8% rate and had been stable until 2001 when it broke 10% and kept climbing. DTI’s during the recent boom were virtually non existent.

I’m not saying it’s ideal, just that it can be done. FHA loans were not designed for people at the apex of their careers, it was primarily for first timers. I had a 41% dti, but I was like 22 or 23 years old, every year that number went down as my income increased.

And the answer to the question about what happens if there is extended unemployment, divorce, etc, is that you sell the house. No dti can calculate that, you stop working, you stop owning, that is not new, I’m sure of it. The part about raising a family and saving for retirement, people who make 60k gross don’t get to raise families and buy houses on that, plain and simple. That example is for they typical college grad buying a little condo for under 200k. So in my mind, since fha was using that 41% 20 years ago and had a lower default rate, even through boom and bust cycles, the culprit of todays problems isn’t that 41%.

Would I buy today with a 41% dti, hell no! I’m over 40, my earnings are near their peak in my career, I do have kids to send to college, and pay for cars and insurance, etc., etc., etc. so I’m more conservative, but at this point in my life I’m not who that loan is intended for, when I was, it worked, that’s all I’m saying.

I could be wrong on this but I was trying to research the history of dti’s and found that during the boom years of 2005,2006, they were using 59%, so was conventional, if that is true, that is crazy. But then again on a stated income loan, there is no dti, I believe that is the biggest reason things went to pieces.

[temeculaguy]

Admittedly I’m using info from 1990/1991 because that is when i bought my first house and the fha ceiling was 41%, the default rate back then was steady in the 5-8% rate and had been stable until 2001 when it broke 10% and kept climbing. DTI’s during the recent boom were virtually non existent.

I’m not saying it’s ideal, just that it can be done. FHA loans were not designed for people at the apex of their careers, it was primarily for first timers. I had a 41% dti, but I was like 22 or 23 years old, every year that number went down as my income increased.

And the answer to the question about what happens if there is extended unemployment, divorce, etc, is that you sell the house. No dti can calculate that, you stop working, you stop owning, that is not new, I’m sure of it. The part about raising a family and saving for retirement, people who make 60k gross don’t get to raise families and buy houses on that, plain and simple. That example is for they typical college grad buying a little condo for under 200k. So in my mind, since fha was using that 41% 20 years ago and had a lower default rate, even through boom and bust cycles, the culprit of todays problems isn’t that 41%.

Would I buy today with a 41% dti, hell no! I’m over 40, my earnings are near their peak in my career, I do have kids to send to college, and pay for cars and insurance, etc., etc., etc. so I’m more conservative, but at this point in my life I’m not who that loan is intended for, when I was, it worked, that’s all I’m saying.

I could be wrong on this but I was trying to research the history of dti’s and found that during the boom years of 2005,2006, they were using 59%, so was conventional, if that is true, that is crazy. But then again on a stated income loan, there is no dti, I believe that is the biggest reason things went to pieces.

[temeculaguy]

Admittedly I’m using info from 1990/1991 because that is when i bought my first house and the fha ceiling was 41%, the default rate back then was steady in the 5-8% rate and had been stable until 2001 when it broke 10% and kept climbing. DTI’s during the recent boom were virtually non existent.

I’m not saying it’s ideal, just that it can be done. FHA loans were not designed for people at the apex of their careers, it was primarily for first timers. I had a 41% dti, but I was like 22 or 23 years old, every year that number went down as my income increased.

And the answer to the question about what happens if there is extended unemployment, divorce, etc, is that you sell the house. No dti can calculate that, you stop working, you stop owning, that is not new, I’m sure of it. The part about raising a family and saving for retirement, people who make 60k gross don’t get to raise families and buy houses on that, plain and simple. That example is for they typical college grad buying a little condo for under 200k. So in my mind, since fha was using that 41% 20 years ago and had a lower default rate, even through boom and bust cycles, the culprit of todays problems isn’t that 41%.

Would I buy today with a 41% dti, hell no! I’m over 40, my earnings are near their peak in my career, I do have kids to send to college, and pay for cars and insurance, etc., etc., etc. so I’m more conservative, but at this point in my life I’m not who that loan is intended for, when I was, it worked, that’s all I’m saying.

I could be wrong on this but I was trying to research the history of dti’s and found that during the boom years of 2005,2006, they were using 59%, so was conventional, if that is true, that is crazy. But then again on a stated income loan, there is no dti, I believe that is the biggest reason things went to pieces.

[temeculaguy]

Admittedly I’m using info from 1990/1991 because that is when i bought my first house and the fha ceiling was 41%, the default rate back then was steady in the 5-8% rate and had been stable until 2001 when it broke 10% and kept climbing. DTI’s during the recent boom were virtually non existent.

I’m not saying it’s ideal, just that it can be done. FHA loans were not designed for people at the apex of their careers, it was primarily for first timers. I had a 41% dti, but I was like 22 or 23 years old, every year that number went down as my income increased.

And the answer to the question about what happens if there is extended unemployment, divorce, etc, is that you sell the house. No dti can calculate that, you stop working, you stop owning, that is not new, I’m sure of it. The part about raising a family and saving for retirement, people who make 60k gross don’t get to raise families and buy houses on that, plain and simple. That example is for they typical college grad buying a little condo for under 200k. So in my mind, since fha was using that 41% 20 years ago and had a lower default rate, even through boom and bust cycles, the culprit of todays problems isn’t that 41%.

Would I buy today with a 41% dti, hell no! I’m over 40, my earnings are near their peak in my career, I do have kids to send to college, and pay for cars and insurance, etc., etc., etc. so I’m more conservative, but at this point in my life I’m not who that loan is intended for, when I was, it worked, that’s all I’m saying.

I could be wrong on this but I was trying to research the history of dti’s and found that during the boom years of 2005,2006, they were using 59%, so was conventional, if that is true, that is crazy. But then again on a stated income loan, there is no dti, I believe that is the biggest reason things went to pieces.

[Author]

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