GarlandAg2012 said:
Fiance and I are saving to try to buy next year, hopefully in the M streets or Lakewood...would love to see prices stay flat or come down some but not counting on it. We are good earners and I thought way ahead of the game compared to many, but just don't see how some of these houses are worth what people are paying. How do so many people afford 500-900k houses? Is it people just being comfortable with more debt or are there really that many people making well north of 250k/year?
It is amazing the debt average folks take on in other areas. Having lent in those other areas for years, New York, California, Hawaii, you see people do things differently. My unscientific sample of clients in those areas had much less student loan, credit card, and car loan payments than around here.
To further explain, when we look at income in relation to debt and income it is all about the monthlies. DTI or debt to income ratio is either front or back-end. Front is house PITI over monthly gross income. Back is house PITI+all other debt over monthly gross.
We like those to be 35% and 43% respectively. They can be higher but that is the happy place. Here in Texas I see most of my clients around 27% and 38%. Thats's 11% of monthly income going to non-property debt. Now in the other markets you see a lot more of 40% and 45% respectively. These folks don't buy a new car every other year like us Texans, a family very easily might only have 1 car(unheard of in Texas), they generally they have less student debt(left leaning programs), and for whatever reason tend to have lower revolving debt.
So let's look at The Smiths and The Jones. The Smiths live n Texas, and the Jones live in New York.
Both Mr.'s are Blue collar employees, with Mr. Jones being union. The Mrs's are both teachers and Mrs. Jones is in the union.
Smiths = $8,000/mo
Income
B1 $60,000 per year
B2 $36,000 per year
House = $400,000 with 20 % down
PITI =$2,402
2 cars totaling $500 a month, a $200 student loan payment, and $300 of other debt payments
Ratios 30% and 42.5% with normal Texas taxes and Insurance
Jones = $10,000/mo
Income
B1 $72,000 per year
B2 $48,000 per year
House = $800,000 with 20 % down
PITI=$4,139
1 cars totaling $400 a month lease, no student loan payment, and $100 of other debt payments
Ratios 41.39 and 46.39 with normal NY taxes and Insurance(non-conforming guides usually don't get too upset below 50%)
Just for perspective
Sorry for the long post
A good plan violently executed now is better than a perfect plan executed next week.
-George S Patton