great info, Amy...I'm curious about this>>
A $700k 3-bedroom house translates into $120k/yr base pay
That seems a very high price for just 120K income. I always thought the rule of thumb for max home price was 3 times your salary, assuming you put 20 percent down. So 360K home for a person with 120K income, including a 60K down payment. What you're saying is double that. I am amazed that lenders approve such loans. Last time I applied for a mortgage some years ago, I had to show that the loan payment would not exceed 30 percent of income based on 2 yrs tax returns (self employed). As I recall, this 30 percent cap amount also included other installment debt such as car payments and perhaps credit card payments. This is in Texas, where perhaps lending criteria are stricter due to the real estate and S&L busts of the 80s. Under those terms, it is harder to buy more than you can afford. The problem with allowing a 120K salary to buy a 700k home is twofold (I think)
* It is obviously an economic risk from a cash flow perspective (besides the fact that month to month disposable income is tight, if the person loses their job, they must find a new one quickly AND IT MUST PAY AT LEAST AS MUCH...perhaps not a lot to ask in boom times, but under cooler conditions, hmmmm)
* The high price probably encourages asset inflation (of home prices), which seems to go on in the Valley.
What are the typical criteria lenders in SV use in determining how much they'll lend? |
