Affordability? Coming Soon...
From MSN Letters to the Editor:
I've been a lender in Southern California for almost 20 years, and I wonder: What will happen to home prices if there are no more "no doc" and "stated income" loans?
Who will be able to qualify for a home in Los Angeles or Orange counties if full documentation is required?
If a husband and wife make $120,000 a year, have two car payments and small credit card debt, the max they qualify for is maybe $400,000.
What is that going to buy them in Southern California?
Truth be told... the way we did it in the 80's... 33% over 38% on a 30 yr fixed with 20% down (no PMI, no tax impounds)...
120K gets you 10K gross per month. The "front" end (PITI) debt service ratio should never be more than 33%.
Therefore, 10K * .33 = 3300 per month which at 6.25% fixed over 30 years, supports a loan payment on $450,000 of $2770.
Add $50 per month for insurance and $450 a month for property taxes, we get PITI of $3270, just under $3300.
The maximum debt service ratio on the "back" end (all obligations plus PITI) should be no more than 38% or $3800.
This means no more than $530 per month for car payments and revolving debt.
Note: In the day, some lenders would require 3 to 6 months of PITI payments to be in a savings account as well...
that meant another $10K or $20K in the bank on top of the down and closing costs...
With your down payment of just over 20% (115K) AKA (SKIN IN THE GAME), this means the most expensive home you can buy is $565,000.
Now, how many people are walking around that make 120K combined and have $115K for down, 10K in savings, 5K for closing and only $530 in other payments???
The greed based fee and portfolio profit lending of the last 5 years is going to come home to roost in a BIG way. Considering 80% of all loans were no down or interest only last year...
with subprime, speculators, 2nd home buyers, 1031 tax deferral transfers and no down lending eliminated...
The pool of buyers has been cut by 75%.. so its no longer 19% in LA County, its closer to 5%...
For those who don't want to sell or can afford not to sell and ride this out, everything will be fine.
For those who want to sell or NEED to sell, you are already screwed... and to pour salt in the wound, prices are going to fall WAY MORE than most expect.
I've been a lender in Southern California for almost 20 years, and I wonder: What will happen to home prices if there are no more "no doc" and "stated income" loans?
Who will be able to qualify for a home in Los Angeles or Orange counties if full documentation is required?
If a husband and wife make $120,000 a year, have two car payments and small credit card debt, the max they qualify for is maybe $400,000.
What is that going to buy them in Southern California?
Truth be told... the way we did it in the 80's... 33% over 38% on a 30 yr fixed with 20% down (no PMI, no tax impounds)...
120K gets you 10K gross per month. The "front" end (PITI) debt service ratio should never be more than 33%.
Therefore, 10K * .33 = 3300 per month which at 6.25% fixed over 30 years, supports a loan payment on $450,000 of $2770.
Add $50 per month for insurance and $450 a month for property taxes, we get PITI of $3270, just under $3300.
The maximum debt service ratio on the "back" end (all obligations plus PITI) should be no more than 38% or $3800.
This means no more than $530 per month for car payments and revolving debt.
Note: In the day, some lenders would require 3 to 6 months of PITI payments to be in a savings account as well...
that meant another $10K or $20K in the bank on top of the down and closing costs...
With your down payment of just over 20% (115K) AKA (SKIN IN THE GAME), this means the most expensive home you can buy is $565,000.
Now, how many people are walking around that make 120K combined and have $115K for down, 10K in savings, 5K for closing and only $530 in other payments???
The greed based fee and portfolio profit lending of the last 5 years is going to come home to roost in a BIG way. Considering 80% of all loans were no down or interest only last year...
with subprime, speculators, 2nd home buyers, 1031 tax deferral transfers and no down lending eliminated...
The pool of buyers has been cut by 75%.. so its no longer 19% in LA County, its closer to 5%...
For those who don't want to sell or can afford not to sell and ride this out, everything will be fine.
For those who want to sell or NEED to sell, you are already screwed... and to pour salt in the wound, prices are going to fall WAY MORE than most expect.
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